CENIT Aktiengesellschaft (CSH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. And on behalf of Montega, a warm welcome to today's earnings call update of CENIT AG following the publication of the annual financial figures of 2023. The CEO, Peter Schneck, will speak in a moment and guide us through the presentation and the results. So after the presentation, we will move on with our Q&A session in which you will be allowed to ask your questions directly to the management. So having said this, we are looking forward to the results, and I hand over to you, Mr. Schneck.

Thank you very much, Sarah, and a very warm welcome also from my side and a very nice good morning to our earnings call for the CENIT AG company. And of course, for the annual financial statement 2023, which hopefully will surprise and please you. The full report has been uploaded already on our website as well as by EQS. So of course, if you have any questions afterwards, and after review of the full reports, as you know, I'm always available, please send me an e-mail or contact me via teams or phone and we will, of course, respond to your questions. This presentation here, which is just a brief summary of this annual financial statement will be uploaded to our website after this presentation as well and then, of course, also on the Montega website, so you will have full access to this one. And as usual, I will run you through the figures because I think this is the most important thing for you. And of course, if you have any questions, then at the end, please feel free to ask me and of course, also my colleague, Axel Otto, who is joining today for the first time, so that then we can respond to all your questions, and we're looking forward to the Q&A session at the end of this presentation. And just one final comment as all confirmed, you know that this will be recorded. So when you ask questions, then, of course, you will be heard and you will be recorded and your full name will be disclosed. So please be aware of this. So looking at our figures and jumping into this one, I think we have some very nice figures to announce. As you can see, we have achieved in 2023 a major increase of our revenues from EUR 162 million, up to EUR 184 million in revenue, which is an increase of 13.9%, and this, of course, despite the economic challenges, especially in Germany, but I would say all over Europe. So you can see our business is strong, and there is a need for automization, which requires digitalization first. Then, of course, what you also see is we have a very nice increase in the EBITDA. This is something that we will focus on also in the future in our reporting, you will see also that we have a little bit more details as they were requested by you and we are open to provide you all further information in future. So we want to improve, we want to be fully transparent. So you will see we will focus more and more also on EBITDA and of course, also on the EPS figure in the future. So for the EBITDA, you see this major increase from EUR 11.9 million, 37.4% up to 16.41%, which I think is impressive increase and more impressive even on the EBIT side from EUR 6.31 million up to EUR 9.22 million, so an increase of 46%. The guidance has been EUR 180 million for the revenues. So you see that we have exceeded this one. And the guidance has been EUR 9.5 million for the EBIT, so we're a little below what you will see with the adjustments that we are even above this, at least on the adjusted side, and you will see some of the explanations for this later on. The EPS went down from EUR 0.75 by 28% down to EUR 0.54. Major reasons, as you can imagine, were the buy and build strategy is, of course, all the investments that we do in these acquisitions and, of course, also attached to this. The interest rate that went up. As you know, we have a major loan that we agreed with the banks, and we reached our swap or means the cap by close to 6.6%. So this is also one of the reasons, and I will come to this later on, while we propose not to spread a dividend for 2023 in our shareholder meeting. You've seen that we have launched last week an ad hoc message regarding this issue and I will explain this a little bit later on. So coming to the adjustments that you have a full view on why we are very optimistic also on our EBIT and, of course, also then for the improvement for 2024. But in 2023, what you see the achieved and reported EBIT is EUR 9.22 million and then what we had is, of course, which we couldn't forecast EUR 635,000 just M&A-related costs. What does it mean? So this is a cost for attorneys, then, of course, provisions for the M&A boutiques and persons that are involved in getting us to those targets and then, of course, also the auditors. Those costs do not include our internal costs. So as you know, we have an M&A team, which basically is Martin Thiel and myself. So the 2 of us and our costs, of course, are not included in this as well as not all travel costs, which would come on top. So you see that this is a strong EBIT. Then we had 2 legal cases in France, which we couldn't really forecast. So those 2 legal cases are basically 2 employees that were long-term sickness employees and finally, they were turned into nonworking anymore, means they have a kind of early retirement and unfortunately, in France, in this kind of cases, what they do is you have to pay like a termination fee if you want to say so, based on the time that the employees spent with the company, so we're talking about 2 employees that basically had now this EUR 365,000 that we had to pay immediately in the month where the medical services informed us that they were not able to work in. So this is another EUR 365,000 on top. And then, of course, the PPA depreciation, which is EUR 1.9 million. So if you would include all those adjustments that, of course, were not included in our guidance and in our forecasted figure, we would have ended at EUR 12.2 million, which I think is pretty impressive, knowing that we came from EUR 6.3 million. This is basically doubling the EBIT within one year. And this is, of course, I think, a pretty good performance of our team. On the EBITDA side, you see as well the EUR 16.4 million reported EBITDA; and then of course, the legal costs for the M&A and French team, which ends up in EUR 17.4 million adjusted EBITDA, which, again, like I said before, is something that we're very proud of, and I think it's a good performance. And it's not the end, definitely. So in 2024, we will improve this and have some surprises on top. Then what we wanted to provide you is also some additional information on -- especially for the analysts that sometimes come up with those kind of questions. What we did is here is we have on the upper -- the one you see basically the CAGR of over these 3 years. So the 12.5% revenue increase over the years 2021 to 2023. And what you also see is a comparison of 2021 to 2023 because, as you know, I started by the end of year 2021. So this is my starting point, comparison point, that I would like to be measured against by the shareholders so that they see whether we had a good or slow performance. And as you can see, including, of course, the acquisitions that we have done, this is an increase from 2021 to 2023 of 26.5% in revenue. And more impressive, I think, on the gross profit side, you see a major increase from EUR 77.5 million to EUR 107 million, so which is another 39% increase in gross profit, which is, again, an outstanding performance of our team. And like always, includes, of course, the acquisitions that we have done. So I will come to this, but the acquisitions are, of course, key for our performance. Then the personnel expenses, including the vehicle costs, which is also something that some of you, the analysts have asked to get a better understanding on more details on this one. And you can see here, we have an increase of 32% from 2021 to 2023, which is based, of course, also on the acquisitions that we have done. So don't forget that, especially ISR is a major team of more than 200 employees that we have added, but of course, it also includes salary increases and onetime payments that we did for the inflation payment in 2022 as well as in 2023. So these were the 2 onetime payments. So if you want to say so. And as you all know, at least in Germany, there has been a tax advantage for this on our employees. So this will not happen then in the future anymore since we use now the funding for this one. But what it also outlines is we have to focus more on nearshoring. You know that we have our team in Romania that is expanding. We are shifting resources and teams from the French and the German teams to Romania to reduce our costs. And we will also in the area of acquisitions look into some interesting acquisition in some East European countries to bring down our personnel expenses, which brings me then to the final chart that you see here, which is a new chart that we have introduced, which shows you now the gross profit after the personnel expenses, so that you have a different view on this and get a little bit more feeling on how we have improved and there you see that we have an increased improvement, if you want to say so, from the EUR 15.9 million to EUR 26.1 million, which means over this 3-year period is 64.2% from 2021 to 2023. So I think good performance but still room for improvement. And you can hear that I think that there's some room for 2024 to get to the next level. Now coming again to the EBIT, there you see also this view on the 3-year chart, we have an increase of 48%, which is close to the increase from '22 to '23, but over this 3-year period, it is 48%, but the EPS from 2021 to 2023 only went up by 5.9%. So like I mentioned before, this is an area that we will focus on and this is also a reason why we have proposed not to pay a dividend in -- or for 2023 to our next shareholder meeting. Now the software share. As you can see, here in millions, the software share is up to EUR 109.5 million. Now this is, of course, what we call PLC and you can see that the PLC went down. And the reason for this is because we have seen before in a third-party software already, especially SAP pushing very strongly, but now also the full pushing for the switch into the SaaS model, which means that we have long-term contracts or more recurring revenue. So the spread over 3 to 5 years, which is the typical phase that our customers sign with us, but on the short term, this means that we take a hit on the PLC because we're not selling that much software in the current year and have to spread it over this period. And this has also, for the first time, affected us on our own software. This is why the percentage went down. Of course, also one effect is the acquisitions, but you will see it is clearly just figure-wise, it's basically a kind of equal or even a slowdown in the PLC sales of our own software. So this is something that we are facing that we can't change. On one hand, it's nice because it will increase our recurring revenue. On the other side, of course, we don't have this onetime impact. And that's why we had also not by the end of the year, the typical swings, as we've seen in the past years with the PLC. So it's good and bad at the same time, but I think overall, I think it's more pushing us into recurring revenue, which means that this will help us down the road. Then some of the figures here, we already discussed. But of course, like always, I would like to point out some of those -- as you can see here, the increase in gross profit is 20.2% from 2022 to 2023 to EUR 110 million, which I think is pretty impressive. The EBIT increase we spoke already about and then, of course, the net profit down and the EPS down as we just explained, the costs that are related to the acquisitions and then, of course, the interest rates attached to this one. So this will be definitely something that we will focus on in the coming years and that we will also report more on EPS, so that you get a much better understanding, what we're doing here? What are the measures to improve our EPS? And this is, like I mentioned before, also one of the reasons why we are proposing this 4% -- EUR 0.04 dividend payment. As you are familiar with the German law, the EUR 0.04 is the minimum that we have to pay to avoid any kind of claims, and this is why we propose this. Other than that, we will, of course, use the money because we have some very interesting acquisitions in the pipeline that will come to where I think we can use the money much better than spreading out the dividend. Then the market cap is basically flat. So we're staying at EUR 102 million to now EUR 101 million. So it's basically a flat development, which is disappointing on one hand, on the other side is, of course, reflecting the current situation on the smaller mid-cap markets, a lot of investors are pushing their money more likely into the large entities or any other resources like gold and other things. And unfortunately, not seeing the potential of the mid-market overall, the smaller mid-caps and especially not [ finite ] at the moment, but I think that this will change very soon. And then, of course, an impressive increase in our order backlog by 24.7%, up to EUR 57 million that we have at the moment. Again, there's acquisition attached to this one, but also we see this increase on the organic growth and our organic business. So despite all the economic situations and all the bad mouthing that we hear about the German, the French and some European markets, we cannot confirm this at the moment. As you can see here, we see certain slowdowns in certain industries, but you will see also in my report afterwards, when we look into some other segments that there's a lot of opportunities upcoming in different markets than maybe we have addressed that so far. Now the goodwill, if you go to the left side -- to the right side, sorry, you would see up there that the goodwill went up from EUR 27 million to EUR 34 million. Something that I would just like to point out. And then, of course, also the cash went up, so this is a nice development, but of course, also bear in mind that we have our loans. So we have some credits from the banks that we took on, and we have some firepower to do the acquisitions. Now the equity ratio went down from 35% to 29%. As you know, like we always stated, our internal cap, if you want to say so, an absolutely limit is the 25%. We will not go below this one. And in our agreements with the banks, the covenant is at the range of 20%, so we're absolutely fine. It's not critical. But for us internally, the 25% is the hurdle that we don't want to jump over. And then on the bottom right side, you see the development on the CapEx. That's basically the investment into acquisitions. We've done a little less in 2023 because in 2022, as you know, we had the major acquisition of ISR, which was more than EUR 20 million that we just invested into this target. So in 2023, we had several smaller targets, but not the size of ISR and for 2024, I hope that this will change, and we will be back to the '22 figures, and I will come to this later. And then, of course, the free cash flow improved. So this is, I think, a positive development. Oh, it's been in mind, of course, this also includes some of the cash out of the loans that we have from the banks. So I think overall, nice figures. If we look then into the figures by revenue type. You see we have a major increase. You've seen this already over the last full year and basically just confirmed by the end of the year, 33.5% increase in consulting and services mainly driven due to the acquisitions of ISR in 2022. So here, we had a full consolidation for the first 5 months of ISR and of course, also of MIP, which we acquired at the beginning of last year. So these are the major impact on this side. On the organic side, we also have seen an increase in consulting and services, especially the team of Digital Business Solutions, where we had so far, the Airbus business and now have some additional other customers that are paying into those consulting and services areas. Then as I mentioned before, the switch to SaaS is mainly hitting us for the first year, I would say, in 2023 in the CENIT proprietary software. So it's basically kind of flat a 5.1% decrease sounds larger than it is in reality because we went down from EUR 17.7 million to EUR 16.7 million. If we look at the total value of the contracts that we signed, we are on a higher range than we were in 2022. But like I described, we have spread it over the next years. So most of the contracts are in the range of 3 years contract up to 5. So this is a positive development for us on the recurring side. But like I mentioned, it's hitting us on the PLC side. And the same thing we have on the third-party software side, you see an increase of 5.2%, which is not a shift from a CENIT proprietary now to third-party software. It's just a coincidence that it's the same figure on the positive side. But this is mainly the organic growth that we have on the SAP and on the full side. So there also we have a kind of shift since already 2 years from the PLC into the SaaS business. So it's spreading, but still, we see this increase, which is a nice development. And this, of course, also the explanation for this is, we have a nice increase on the organic growth side. Last year in 2023, we've grown in organic growth by 9.2%, which I think is also very impressive performance of the team and reflects that, I think we're a little bit more aggressive and less sleepy than we might have been in the last years in the basic business. If we then look into the sales by segment, as you know, and I've also heard you requests to have a split into the 5 business units. We will not do this in 2023 and also not for 2024. I think once we cross the EUR 300 million, we will go into a kind of reporting where we will show the different divisions. At the moment, we are not doing this because our competitors as well as our partners could identify the revenues and the debt-related EBIT. And this is, of course, something that we would like to avoid. So that's why we basically show these 2 segments into EIM, which is the documentation business. There you see the major increase of 46.3% to EUR 40.4 million in revenues, which is MIP, ISR and the former EIM business and of course, due to the acquisitions of ISR and MIP. And then you see on the PLM side, everything else. So this is not only Dassault, this also includes the SAP business, which is related to PLM. As you know, it's all proprietary software that is connecting to the PLM business. And it also includes, of course, the robotics and some of the services that we are providing to our customers into the segment. And there you see that we also have an increase of 7.3%, which is mainly organic growth in this side only because we haven't really done acquisitions. There's a smaller portion of AVC included, which is the acquisition of SAP and a little bit of [ PE ], but it's only half year figures, and it's more likely flat. It's really the increase driven by our organic growth. Then a small shift in the revenue by segments. If you compare this to the last year's reporting that we have done, you see that the automotive sector went down from 32% last year to 30% this year. The manufacturing business went down from 21% to 17%. So this reflects a little bit the slowdown in the German economy. The automotive sector, since I'm asked in many presentations by the analysts, is struggling on the supplier side. So the Leoni and other companies in this supplier segment are not spending that much at the moment into digitalization because they are focusing on their core business and have major issues. On the other side, the OEMs, they invest heavily into automization and digitalization to reduce their costs and also to shift production plants -- manufacturing plants from China into other areas where, of course, we are supporting. Then flat, same level as aerospace and defense. You see it's 18% of our revenue. If you ask me for the defense portion, the ESG figure is in the range of below 2%. And when we count that's way I'm saying the defense ESG figure, these are explicit defense companies where it's very clear that they only do defense equipment stuff with our solutions. All other companies are considered as nonmilitary. And that's why we have this slow 2% ESG figure. And then, of course, we have the financial services where we have a shift, an increase from 8% to 10%, mainly driven also by ISR because, as you know, with their documentation solutions, they are heavily involved in insurance and financial services, which we consider here. So this is one of the reasons for this increase. And the other increase also driven by MIP and of course, ISR is the increase in the public sector from 3% to 4% in 2023 revenues or the other ones stay almost the same. You see an increase in the energy and utilities from 3% to 5%. And we have a new segment, which we call Shipbuilding Heavy Industries with 2%, which is a new one that we have introduced since we have now here some companies that are producing, of course, ships as the name says, and heavy engines that are not used in the automotive or other sectors that we have driven here that is why we're showing this. And they are nonmilitary, that's why we have them now in a separate business. So this is just showing you the small shifts that we have, nothing dramatic, but I just wanted to point this out so that you see how we react with our revenues on the markets. Then just giving you some customer highlights and maybe also outlining how sustainability is driving also our business. In a lot of cases, I hear from all our competitors as well as also in the market from analyst banks and in other team members that everybody speaks about ESG and what was really the impact on this one. We see it in our revenue. We see it as a kind of shift also on our customer base. And the first one to mention here is a company called Unbrick, which is a Dutch company that is basically building sustainable houses and that are highly energy efficient and to develop them, they are using the 3DX platform so we could win this customer as a new customer. The same applies to a new customer called Quantum, which is a Bavarian e-mobility transit company that is focused on new solutions for our transit of the future, and they are also using the 3DX platform from the full system. Then on the VICI, called the SAP customer, which is I would say, current business. So this is a new customer for us, but not sustainability. And then also non-sustainability is, of course, Fokker, a new customer for us that we could win and that is using the 3DX platform to develop now sustainable planes with zero CO2 emissions. So there you can see out of these 4 customers that we have here, 3 of them are new customers due to sustainability and our ESG solutions that we provide. Then we are entering with a new Dassault solution that we are pushing very heavily also the energy market. As I told you always in the past, I'm focusing more on this colored segments that you've seen in our revenue segmentation that are in the upper left corner because I see there are a lot of opportunities, and I want to shift a little bit our company more into this direction so that we're not depending so much on automotive, aerospace and the classic manufacturing. And we achieved now to introduce ORTEMS, which is the Dassault solution into one of the key players in energy based in Germany. So a very interesting new development. Then a leading supplier is using our SAP solutions for collaborative solutions and whenever we mentioned this year, we're not allowed to say the names. So the same applies to a key player in a pharmaceutical manufacturing, also something that we're pushing into with ORTEMS solution and where we could introduce this combined with the SAP connection. And then finally, we have, again, a sustainability solution where we could introduce our 3DX solution combined with Microsoft dynamics, a combination where we have [ UTP ], now some expertise in our team. And we started here with a start-up in the transit and mobility area. So you see transit is becoming more and more interesting for us maybe also because of my past where I was working, of course, in the transit industry. Then very interesting to mention, Safran Aero Boosters, a customer where we last year did more than EUR 1 million revenue with. Safran for those who are not familiar with this company, this is an aeronautics company that has close to 50,000 employees, is not producing planes, but very close to it. And they're using our solution of 3DEXPERIENCE as well. And are becoming more and more very interesting customer for us. They are now looking also in the combination into the SAP PLM solution of us. So there will be good for another EUR 1 million revenue at least in 2024. Then we have a premium car manufacturer where we introduced in 2 plants now our own proprietary solution for robotics, FASTSUITE edition 2. And it looks like that they will launch this solution to all their plants worldwide. So we are expecting another 15 new plants that we will equip with our solution, which will boost our sales in the robotics side. And then we have a British luxury car manufacturer that chose to connect 3DEXPERIENCE with SAP by our solution. We developed here a solution that is very special and seems to be really unique, which we will spread out also now to other automotive customers and which might be a game changer for us in this segment. So we're looking at the moment. You've seen that there's [ the FAW ] and BMW that they have signed major contract where we might be involved in this will be also one of the areas that, of course, we would like to be involved. And then finally, a company that for most of us, it's not known. It's XCMG. So this is not that we don't know the name. This is the name of the third largest construction equipment company in the world and they are using our E2 solutions, and we're looking also to run our solutions as a white label solution on their machines in the future. So this might be also boosting for our robotics. Looking again on the financial figures, just to give you now a view on the CAGR, 8.1% since 2021 on the sales side that you also see we have been over many years, quite flat. We're improving. Still my target is that we will be 2 digit. So there's some room and we will get there. And the same applies, of course, also to our EBIT challenge. As we always said, and this hasn't changed. We're targeting for 8%, 10% in EBIT, we achieve now the 5%. So this means 2024 will be the year where we will do some performance improvements in our organization. I think we have now the puzzle pieces developed to get this together. And the last 2 years, we've done a lot of changes in our organization and improvements that will pay off in this year, and it will also help us to increase our revenues and then, of course, also the EBIT with almost the same cost structure. So there will be boost. And on the other side, I still see some room for performance increases. We have some new tools that we are introducing here to our teams to measure everybody and in some cases, also to be very honest and to ask honest questions to the team members, how they see their the bright future. Then coming to the growth through M&A. Again, it's not -- I mean, it's part of our strategy. As I said right from the beginning, we have a buy and build strategy. In 2022, we did 3 acquisitions. In 2023, we did 3 acquisitions. This year, we did one. And as you can see here, there are at least another 2 to 3 coming that are in the pipeline, and this is also one of the reasons why we decided in the Board to suggest not to pay a dividend. As I mentioned, we are paying at the moment the maximum because it's capped, but an interest rate that is close to 6%. If you then add the costs, you've got [ feeling ] before of how much we are paying for those acquisitions and the fees that I attached to this one. We basically -- and it is the conclusion that we came to are working for the banks and for those agencies. So if we buy a company that has 10% EBIT, it basically has no impact on our EBIT structure and especially, of course, not on the EPS. So this is something that our shareholders are very much interested. And this is why we said this year until the interest are coming down, and we all hope for this, but hope it's not a good strategy. So that's why we decided we will not pay the dividend. We will use the money intelligently for our targets. We are in negotiations with 2 targets at the moment, I would say, closer -- in a closer way. That does not allow me to buy further shares of CENIT, so you get a feeling on how close this will be. And of course, that's why we don't think it makes sense to pay a dividend. We know that share -- some of the shareholders might not be happy with this decision. And of course, I'm also a shareholder as well as Axel. But on the other hand, we have to look for the future of CENIT. And I think that at this point, this is the right decision, and this is also why we will continue with our dividend strategy in the future. So we will pay dividends in the future. But I think at the current moment, what the interest rate are that high. This is one of the reasons that we should maybe take a break for this year and then continue paying dividends in the coming years. If we look at the synergy share, we basically had a kind of flat development over the year, very slow increase, unfortunately, based at least on the EUR 12.4 share price. If you compare this to our peer group, I think we haven't done that bad. But I still think that, of course, we are hit also by the effect that the mid-market and small businesses are not the main focus of the investors at the moment. If we look at a 2-year view, and this is what I always do since I started, we basically have a 2%, 3% increase, which is not outstanding, but if you compare this to other companies in our peer groups that lost close to 50% of their values then I think we're doing good. Some of the investors then say, yes, maybe because of the robust shareholder structure might be. I'm just commenting on what I'm seeing, and I think this is what we're good, but I hope that based also on those figures and on the positive outview that we can give for 2024 that the share price will go up. Now on the shareholder structure, one thing that I would like to point out, we have an increase on the what is called LBBW side, which went up from 3 point-ish percent now to 5.1%. We're one investor behind or using LBBW as a tool has increased their share portion, which, of course, we were very happy about. And what you also see is that the management, Supervisory Board has increased their shares as well. So Axel has, as you've seen, increased or bought shares by the beginning of the year. I did it last year in October and before I started, so that I'm now close to an amount that reflects close to EUR 500,000 that I have invested and Axel also, I mean you can see this in the reporting of beginning of this year. And it is [ trading ], it's still in the same range, 18% to 21%. Hope that this will come up after those figures. Dividend policy, I just mentioned, we will not change our dividend policy, but just due to the structure that we see at the moment, the interest rates that are not to our favor, we will just take a break for this year and then go back into the current structures. We've done this in the past, 50% of our profits of the AG. So now I have to separate this. CENIT AG will be spread also in future. So this is our dividend policy that we're not changing. But like I mentioned, this doesn't make sense at the moment to go for a credit by the banks, pay 6% and then on the other hand, to pay dividends. And coming to the end, to give you some background information on CENIT team, 893 employees by the end of the year. If you add the acquisitions that we have done and the starting point, you will see that we have done some performance increases already. So we would be normally at 960, 970 team members. So we have done some changes here, and we will continue improving this. And then on the other side, what we wanted to point out is we have, at the moment, 52 students and trainees in organizations. So this is one of the focuses we're supporting young team members. This is also a good way to get good employees and to train in the way that they work in our direction. And then, of course, what we're also very much focused on is the share of women in our organization. At the moment, 25%, which for an IT company, I think, is strong. But of course, we're working on improving this one. We have now some corporations with the universities here in Stuttgart where we have dedicated courses for the so-called, MINT, which is mathematics, informatics and technology programs for women that we are pushing and we are working very closely with your universities to increase our share here. And then I think final view on the financial calendar for those who are joining those, please feel free to come and ask me to book the sessions. The next one is very closely coming up in 2 weeks already in Frankfurt. Then there's the Munich Capital Markets Conference, GBC one. And of course, as you can see, Stifel and then also [ Haulken Halfizer ] will have there sessions where I will be present. And on the sixth of June, we will have our Annual Shareholder Meeting. We invite you all, of course, to join us and to ask a lot of questions. Now I think you've seen, this was an overall very good performance in my eyes, at least in 2023, thanks to the team. As we've seen also, acquisition is still key. It's part of our strategy, the buy-and-build strategy, but it's also key to give us some room to do some organizational changes without hitting our EBIT margin. And on the other hand, it gives us now also the potential in [ 2024 ] to increase the performance on the EBIT side without acquisitions, of course, the acquisitions will come on top. So for 2024, I'm sure that you will ask and will raise this question. We are very positive at the moment, as we've seen also with the order backlog. We only have positive signs. We see a certain slowdown, but we also see some chances in other segments. That's why we have also disclosed a range of guidance for 2024 in our annual statement and the guidance is for revenue. We will be at EUR 195 million to EUR 202 million without acquisitions that we have done already an acquisition by beginning of this year, and the EBIT range that we will be in is EUR 11.7 million to EUR 12.2 million without M&A. So I think this is also in the range of your expectations. We try to be a little bit conservative. That's why we have this range. It's always difficult to be really exact by the final dot figure. But of course, we are targeting to exceed those figures and then maybe to surprised again by the end of the year. So that's it so far. And now I think I would leave it up for questions to Axel and myself.

Thank you so much for the deep dive into the figures, some highlights and congratulations on the results due to challenging economic time, so we will now move on to our Q&A session in which we also warmly welcome the CFO, Axel Otto. So for a dynamic conversation, we kindly ask you to ask your questions in person via your line. [Operator Instructions]. So and then we have a lot of raised hands. So we start with the questions from Tim.

My first question is on the operating cash flow, which seems to have been negative in Q4. So you had EUR 8.5 million or so in the first 9 months of 2023. And this went down to EUR 5.3 million, EUR 5.5 million for the full year. Could you just quickly explain what happened in Q4?

I think there I have to refer to Axel. I cannot -- that quick answer this one. Mr. Wunderlich, I would have to review this one, and then we'll provide you the information because there hasn't been anything exceptional that I'm aware of. So it might be just an effect. Well, I will look into this one, but I got.

No, that's fine. But I guess, typically, CENIT, should be able to generate EUR 10 million plus in operating cash flow per year.

Yes, yes. No, no, no.

Absolutely. Now I can answer the question. If you take a look to the balance sheet, you see that we have an increase in working capital that is due to the strong quarter end business we had in Q4. Our cash position in Q1 improved a lot and when you're listening to the next call in May, you see that our cash position is stronger than in the past. So we had an additional accounts receivable of around EUR 10 million compared to last year.

EUR 10 million. So this is the explanation. It's basically just a shift into Q1.

So a temporary effect, yes.

Absolutely. That's what we're saying there's nothing exceptional. What we have seen what is I cannot say exceptional, but it may be in respect to the economical situation, we have more and more customers that are using what are extending their payment terms, let's say it this way. And that's why it went up by EUR 10.5 million accounts receivable in -- by the year-end.

Okay. Understood. And then regarding your 2024 guidance on revenues, you're still going to have some contribution from M&A, and I'm talking about M&A targets that you acquired in 2023, right? Because they were only consolidated for a few months. So what is the implied organic growth rate in your guidance for 2024?

Like always 5%, because this is the generic organic growth that we have included into the target setting because when we do the setting with the different divisions, they always have 5% minimum organic growth as a target in there and then, of course, what we do is I'm not target setting. So we're doing bottom-up and, of course, bottom down planning to see whether it's matched and then we come together. But it always includes this 5%. And as you rightly said, any acquisitions will come on top.

Okay, understood. And is there any way to quantify the negative effect that you are experiencing on growth due to the shift from licenses to SaaS? So the short-term negative effects evidently.

Well, the short-term negative effects you can range, it's -- I mean, again, this is nothing that I would burn my hands for, but I raised, of course, the same question here to our organization. And when we looked into this one where I would say that we have definitely by year-end. So the PLC shift that unfortunately, we couldn't book and is now going into this long term. It's at least EUR 6 million that I have just from PLC into the short-term view on the view. So just by this, we lost by year-end about EUR 6 million. If I look at now -- and this is, of course, part now also of the order backlog that you see is now, of course, there's portion of this increase is, of course, now sort of spreading over the 3 years. So this is, of course, a little bit more than just the EUR 6 million. Year-end effect is about EUR 6 million.

Okay. And then my last question is regarding the M&A target that are set to come in 2024. You talked about 2 to 3 M&A targets. I understand this is not included in the guidance.

Correct.

Could you give us a rough idea if you were to execute on all 3 targets, what would be approximately the sales and EBIT contribution if you are already willing to disclose this? Just a rough idea?

Just to give you a rough idea, as I always said, by beginning of next year, we should be already in the range that we are at least at EUR 240 million, EUR 250 million. Full consolidated so that we for next year, then add 1 or 2 acquisitions on our way to the EUR 300 million. So this is why I'm saying, we're still on a good path to the EUR 300 million. We have to increase this year. So the full year effect, and again, it depends on when we will get them on board and if we will get them on board. But the moment -- at the moment, what I can see is the full year effect should be in the range of EUR 40 million to EUR 50 million.

So we will move on with the question from Cosmin Filker.

Hello Mr. Schneck, can you hear me?

Yes. I can hear you Mr. Filker.

I just have 2 or 3 questions. One question is linked to the last question of the [ inorganic ] growth that is expected. For this year, you expect an EBIT margin of 6%. And for next year, it's minimum 8%. That means that usually the companies that are to be acquired have to come in with at least an EBIT margin in the double-digit range. Is it -- are you confident that these companies can show this high EBIT margin?

Yes. Yes, I am confident, Mr. Filker. So the first thing is we have to get them on board, so they aren't signed. So I'm always saying we have to see whether this works or not. But if they come on board, yes, we acquire companies that are in the double-digit rate on the EBIT line. That's one thing. The other thing is, don't underestimate what I mentioned before is we have potential to improve our performance of the, I call it, old CENIT company or core company, like I always said, this is the major work that we have to do because there's quite some room for improvement, and there's a need for improvement. So if I look into the last 2 years, we've done a lot of changes and a lot of things that have to pay off now in 2024 to get us to the next level and then, of course, also to contribute in 2025, together with the inorganic growth because we cannot rely only on inorganic growth to achieve our 8% to 10% EBIT target. So this is a combination of both and this is now the year of truth where we will do also some performance improvements to the old organization.

So as I understand, even without new companies, the EBIT margin will increase in the next year, but it won't grow until 8% that is expected. So in order to reach the 8% EBIT margin, you need to grow inorganically.

Yes, yes. It's a combination of both because it's always -- the truth is the inorganic growth also buys us some time and also some money to do some of the improvement. If you look at the EBIT improvement that we have done, which I think is still impressive. But if we just look at the old business, if I may say so, then of course, we would not be in the same range. So just the contribution would be definitely EUR 3 million by the inorganic growth or companies that we have acquired in the last 2 years. So if I just look at the old organization, I would say they basically stayed flat. We have done some improvements, but they have to pay off now.

Okay. The next 2 questions regarding the PPA amortization. First one, you showed the adjusted EBIT, showing that the PPA was responsible for about EUR 2 million. In this EUR 2 million, there are also the ISR PPAs?

Yes.

Okay. So a part of this PPA was known at the beginning of the last year?

No. It was not fully known because there were some adjustments made. But you will see this in -- or the full PPA view we have explicitly mentioned this in the annual reporting, where we have listed them, that you can see by the different companies and you can also see the changes potentially.

Okay. But just looking at the new company reports in the last year, there are new PPAs or new fixed assets coming in at about EUR 6.6 million. That means that PPAs will increase in this year, at least at EUR 600,000.

I cannot comment on this. I would have to review this. Mr. Filker, it sounds right, but I haven't checked for this one. Yes.

Okay. And one last question regarding the revaluation of the non-call acquisition of ISR, also affected the financial results. The retaliation leads to the increase in the interest rates? Or is it linked to a change in the business plan of the ISR?

I think it's no. The only change that you see we have done shifts from -- and this is why it also has impacted a little bit the figures. We have done a shift from EIM team members from the old organization from CENIT, 21 employees that we shifted into ISR. And this is why there are some changes in here.

Okay. So for the next -- for the coming years, I mean you never can forecast this kind of changes?

Yes, but it should be in the range. Yes, absolutely. I mean what we're targeting for now is still with this theme that by the end of next year, that are in the range of EUR 50 million revenues and that the cost structure stays almost the same as it is now because we will not do any further changes from the CENIT organization into the ISR organization.

Okay. And just last -- one last question. Purchase price liabilities are totaling EUR 1.3 million. Are they due for this year?

No.

Okay. So the -- I mean, the adding to the 3 companies that are acquired.

Yes. Correct.

I just clearly can answer the question regarding the PPA. So from 2023 to 2024, we increased by EUR 400,000 [indiscernible] 2.34.

Let's move on with the questions from Yannik Siering.

I just have 2 questions left and maybe 1 follow-up. The first one would be on your automotive share, which has increased in your revenues and therefore, also the overall share of, let's say, cyclical industries. Should we expect a continuation of this? And maybe you can provide some color on what are the sectors with the most dynamic development at the moment? That would be the first one. And then the second one is, maybe you can provide an update on your goal that you have stated some time ago, to reduce the dependence on your largest customer or clients? And then the last one, just a quick follow-up on M&A. The 2 deals that you have mentioned, they seem to be quite concrete already. And also given that you suspend the dividend, mainly due to future M&A, should we expect a closing here in H1 already, at least for one of the 2?

No. Coming -- so Mr. Yannik coming to your last question, no, I'm not expecting them in Q1 because basically, Q1 is done. So...

H1, that is...

Okay. So H1, yes, we would expect at least one of them, if not both of them coming to an end, yes and to signature. So that's definitely the case. Again, if ever, we come to an agreement, but we're very optimistic on this one. Then coming back to your question regarding the automotive sector, or general -- in general the, I would say, segments that we see that are very dynamic. I think the first one to mention that is very dynamic is anything that is related to aerospace. As you've seen also here, we have now, we have Fokker, where we expect that this year, there will be quite some revenue coming from this company as well as Safran, which is also in our eyes, at least considered as aerospace. So I would say aerospace is the most dynamic one that we have at the moment. The second one that I would mention is insurances. So what we consider here as finance services. You've seen that there has been already an increase, and I expect that there will be more to come. We recently just had a customer event where we had 35 leads out of this event afterwards and leads that are interesting amounts. So that's why I'm saying this is very dynamic. They are reducing their costs by introducing a lot of dynamic solutions now as our digitalization solutions with our artificial intelligence solutions from the simpler, so this seems to be a real game changer for the industry and a bit simple with their new artificial intelligence solution seems to be also the #1 solution for this segment at the moment. They really are in a pole position with the solution. The automotive sector, we see a lot of dynamic as well. So it's good and bad, like I mentioned and I mentioned also to you already in some of our meetings last time. We always have to separate this into the suppliers that are struggling. And though they are looking into digitalization, they have limited funding. It has to have an immediate effect on the costs. Otherwise, they're not able to do certain investments. And on the countermove, the other flip coin is, of course, the OEMs. They are heavily going into this one. And I mentioned before, Jaguar Land Rover in U.K., where we have introduced our solution for the SAP connection to 3DX, BMW, as I mentioned, signed the contract. This is not included in our forecast and also not in our the current order backlog. So there is quite some potential. And of course, you should go there are some companies that produce some cars that are looking into our solution. So yes, there is dynamics. And I would say these 3 areas are the most dynamic ones, and as I mentioned also in my customer view, positively, I see also sustainability being an issue where more and more companies are coming up using these opportunities, chances in these areas and, of course, us also being in a position where we can show them some opportunities on how to use digitalization to improve their sustainability rate. So there is quite some movement in those ends. And then your third question regarding the client dependency. Yes, we had -- and you know this, we had in the past, especially dependency on Airbus. I would say it's revenue-wise, the same level or even improved, and they're threatening us with more orders. So this is a very good relationship that we have with Airbus. And as I mentioned, it's one of the dynamic segments. So I don't expect the revenues coming down in this area. But percentage-wise, we have managed also now to have, especially in the service segment, additional customers that -- where we introduced our services. We have now MRN, Porsche and others that are handled by this division. This is why you will also see a shift from some of the services businesses that we had under 3DX into this digital business solutions, and there will be a service increase definitely. So revenue-wise, in percentage, the dependency on Airbus is coming down. Overall in figures, it's basically the revenue has gone up with Airbus, which is a very nice development. Other than that, we don't have a lot of dependency from large customers. And the next ones would be Volkswagen Group, if you want to say so, with Porsche, MRN, Skoda, that are, of course, a Volkswagen Group themselves, so the Volkswagen car, Scania as well. So this is a certain dependency, but not something major. So it reflects about EUR 6 million in total. Airbus reflects now EUR 8 million, so there is nothing really strange and beyond this, customers in the range from EUR 2 million down to EUR 500,000 is the typical range that we look into. So we're working on bringing this down. And then of course, if we -- once we talk about dependency, this was the client view. If you look at the revenues that we do with our major partners, Dassault system, we have managed to bring down, although that we increased the revenue in figures to close to EUR 110 million, we are now close to half of our revenues that we do outside the Dassault world, where when I started, it basically was 2/3 done with Dassault and then the rest spread over the other. So there you see with the acquisitions, some of the changes also in our market approach that we have already decreased this dependency quit heavily.

Thank you so much. So let's go quickly to the questions of Hannes.

Quick questions. Do you have the organic growth figure for 2023, excluding all the M&A revenue, one, at a group level and then maybe also at segment level of PLS and especially, of course, EIM then kind of on the same note for 2024, where do you see the growth potential PLM versus EIM, a continuation of 2023 that PLM is continuing to grow well. And then a bit of a different topic on the margin step-up you expect for 2024. Could you go more into detail on how you plan to improve profitability internally already mentioned some ideas and some measures, but maybe you can expand on that.

So like I mentioned, the overall growth figure is 9.2%. This is our organic growth figure. So this is not including any of our acquisitions, though we haven't done -- I mean we have MIP, which is included in the AEM figures. It will we basically have -- if I look into AEM, we have -- and if I clean out now ISR and I clean out the MIP figure, then I would say that AEM is basically on a kind of organic growth, is a kind of flat or even decreasing because then I'm looking only on AEM old, so they even lost some revenue because we also shifted then the teams into AEM. So now it's very difficult to say which revenue is part of old and new. This is, of course, one of the changes that we have done, but I would say that over last year, the organic growth in AEM has been even negative if you take out all the ISR and MIP effect. And this is mainly driven due to the fact that we have 2 major shifts. Number one is, we have here the major impact on the PLC business into SaaS, so as you know, we have our ECLISO solution. That is the major portion of our revenues in AEM. And there, we had this shift, which, of course, then is a decrease, if I compare like-for-like the PLC figures. And the second effect that we have is we have a kind of, I would call it, 3-year wave. For every 3 years, we have renewals of contracts and add-on contracts. And last year was one of the depots, I would say, hey, where it goes down. And that's why we had a kind of negative impact on AEM basic core figures of CENIT Old. And then, of course, we have organic growth in the inorganic, which I'm not considering now and I'm not going into this one, but this would be also difficult because then ISR has organic growth, but you have also included now the shift of some of the contracts and some of the teams from the old world into ISR and MIP has done a quite nice jump. So they had a very nice organic growth, which was in the range of close to 8%. But this is just MIP. Then when I look into the PLM business, the PLM business had a growth, as you've seen before, 7.8%, which we have to split now into France, which was close to 10% growth. So they had a very good year and lower growth in Germany, mainly affected, of course, due to the economic situation that we have. So the growth rate in Germany was, if I take also the services growth, so if I just look at the period increases, we're talking about close to 4% only growth in the software sales and of course, the solution third and -- so third-party software and internal software. If I add on now my services, then of course, we are in the range of 7 points including -- so this is 6.8%. So this is why it bumps up then altogether in the 7.8% France and Germany. And then, of course, we have a little bit of Romania where we also had an increase. So this is the performance that we had. We will have -- like Mr. Yannik mentioned before, we have included 4 AEM as well as 4 PLM minimum growth of 5% organically. I expect this to be better this year. Again, you've seen we have a pretty good order backlog. We have some positive feedbacks from the markets. The Q1 has been in the range of our expectations. As you know, it's always a little bit slower. It starts, but we have some very positive signs and good negotiations with customers also for larger contracts that will hit us now in Q2 and then, of course, in the rest of the year. So I'm very optimistic that this year we will be again in the range, organic growth, 8% to 10% should be what we will achieve again without, of course, acquisitions. This is then the other thing. Now what we will also disclose to you is to maybe reduce the confusion as we will give a view on what we consider as organic and inorganic. So in future, we will always provide you a list of all the companies that are considered now as organic and the ones that are inorganic growth or just in the middle of it because we want to count companies only have organic growth once we have a full year consolidation in our figures, which means, in some cases, a company is only considered as organic after 2 years -- after 2 calendar years because we acquired them in the middle of the year and then have another half year next year, and then we would only show them the year after, so that we have a full organic view and that we are talking about the same figures. And then your last question, Mr. Mueller, was about the margin step-up. Yes, I mean, the margin, what we have done now is it took some time, but now we have a pretty good view on down to every employee, what utilization rate and performance level of every employee. And based on this, we will have some motivation talks to get them to the next level, which, like I always mentioned also before, we have to do more revenues with the same cost structure means with the same team, and we have to get rid of team members that are maybe not performing the way as we would expect them. Just to give you an idea, I still have team members that don't provide the revenues or don't bring in the revenue and now I'm talking about sales team members, that they cost. So if they cost EUR 80,000, they bring in EUR 30,000. So there's room for improvement. Let's talk it -- let's say it this way. And as you also know, we will -- we have never planned this, have we also haven't done this so far. We will not have a restructuring or anything like this, but we will have discussions. And at the moment, the market is still good. So if team members don't see opportunities in the organization, then they have to look for better opportunities. So this will be the main driver for our margin step-up on the organic.

Further questions. Yes, we're already over time. So we have one raised hand left and 2 questions in our chat box, just to give you an overview. So let's move on with the questions from Christoph Hoffmann.

Just 2 follow-ups from my side. First would be on the USA operations. I see that you were able to achieve a slightly positive result this year or last year and I'm wondering how you currently think about your position in North America. Can we expect further steps this year or next year, maybe in my view, this would increase the complexity of the group a lot. So your thoughts on this would be helpful. And secondly, are you also discussing or thinking about changing the dividend policy. I mean that's based on the balance sheet figure and net profit, so for example, 50% of EBIT or EPS or something like that. This also would be helpful.

Okay. Coming to your first question, Mr. Hoffmann, regarding U.S. operations. We have currently in the U.S. 13 employees left. We have one of our team members in the management that got retired by the end of the year, one person did left. So that's why we're now 13. When I go into meetings with some large companies based in the U.S. And I said that we have 13 employees. They look at me and say, "Wow, you have 13,000 employees, so where are they based"? And then they basically have to say, well, we have 13 and not thousand and they're all based in [indiscernible]. So it's a problem for us, and we either have to shut down the business in the U.S., which we created some years ago because of Boeing or we have to do a major jump into the market. And we have decided to do the later one. Yes, there's complexity attached to this one, but there's also a lot of opportunities in the market. And with the 13 employees, we cannot do really business in the U.S. So what we would have to do is an acquisition of a team that might be in the range of 50-plus employees that we have a strong backbone and can also introduce all our products to the U.S. market because at the moment, we're only selling robotics and a little bit of SAP solutions. Though there's a huge potential in the market and as we all know, whoever becomes the next President, the U.S. is an increasing and booming market, much more positive than we are here in Europe, especially in Germany. So this is why we are looking into the U.S. market. And we are looking into steps also in 2024, and it might be that one of the acquisitions might be a U.S.-based company. So we would love to do such an acquisition. So like I always said, I think it makes perfect sense. And on the other hand, it will allow us to work in the U.S. or the North American market on one hand and on the other side, for such a company, maybe also to use this as a jumping board for the European market and to increase our organic growth with existing solutions that we have, but maybe not all the knowledge and expertise. So if you combine this, this might also be a big boost for this organization in the European market. So this combination, I think, is something that we're very interested and that we're looking into. So this is where I'm going to stop it for the U.S. operations. Second question was regarding the change of [indiscernible] dividend policy that you were asking for? So we will, of course, focus now on EPS more because in the past, we were only driven by -- basically, when I joined, it was the gross profit. So then I shifted this to EBIT. Then we introduced now also the EBITDA because of the acquisition. And we will also -- because of the funding and the interest rate, we will, of course, also change this or have more in the focus as we had so far the EPS. And on the other side, of course, also free cash flow, which is also something that wasn't maybe in the focus as it should be. So yes, there will be changes in the focus. No, there will not be changes in the dividend policy at the moment. What we are considering is just to stay on where we are just with the dip in 2023 because of the current acquisitions and the current interest rate that we see in the market. But other than that, we will stay on the 50% of our profits of the CENIT AG, which, again, I always have to precise in the past, it always has been AG and there was not a big difference. Now there is a difference because AG and of course, the rest of the group because of the acquisitions, they are getting more and more into different funnels as well. That's why I'm precising of CENIT AG, which should be then at least in the range of the EUR 0.50 plus that we're looking also for the future.

So thank you so much. So we have now 2 questions left from the chat box. So the first one, won't be SaaS transition, which is still in its beginning put pressure on margins in the upcoming years? We have seen with many companies that the transition phase can be very lengthily and challenging. How do you intend to master this?

Well, we're right in the middle of this. So the -- I mean, the challenge is what -- at least what we've seen is in the range 3 to 5 years. I think this is something that is happening. We are now in the third year with SAP. We are in the second year with 3DX. We're in the first year of our proprietary software. So it is included in our figures. And we just have to make sure that we have this under control. Is there any magic solution to this? No. On one hand, we're happy that it goes into the recurring revenue. On the other hand, PLC is going down, but that's definitely something that we're focusing on. And this all I can say to this. So there's nothing -- there's no magic formula, unfortunately.

All right. And the last question, where do you see net debt at the end of the financial year 2024? How long term is the financing? And how quickly can you restructure it if interest rates fall?

We're right in the middle of it. Like I always said, we were -- we have, at the moment, a credit loan for EUR 40 million. This bilateral credit loan is basically down now to EUR 30-ish million, EUR 32 million, EUR 33 million. And we are in the middle of restructuring this. The contract runs until 2026, so there's no pressure. But we can improve of our costs and rates attached to this one. And of course, what we are expecting is that the [indiscernible] is reducing, of course, the interest and the [ overboard ], which this is all based on will come down. So we are in the middle of the negotiations with the banks. We have slowed this down a little bit to wait until we get into the right range. The plan is that we will increase or turn this and restructure the current loan that we have into a syndicated loan with 5 banks. At the moment, we have 3 banks. We plan to extend this by another 2 banks to basically have 5 strong pillars, if, for whatever reason, one or the other bank goes down and to increase the loan from the current EUR 40 million up to 70 plus 10, means another 30 plus 10 or maybe 20 plus 10 only. It depends a little bit on what the proposal looks like and, of course, also what the covenant expectation of the banks are. Like we mentioned, we feel comfortable with an equity ratio that goes down to 25%. So this means for the bank's 20% and a net debt of 3.0% is the covenant that we have at the moment. Last or by the end of the year, we were at 0.9%. So we're far away from this. And this is not an issue. But again, we have to make sure that we're not running into any difficulties here. That's why we want to be on the conservative side. And this might also be the reason for not going for 70 plus 10 and then maybe only going for 60 plus 10. This we will see, which might slow down a little bit our activities in acquisitions, but as we will see on what the interest development is. So this is the current expectation. Net debt, it really depends on what we're going to do now with the banks and how it looks like. So at this moment, I think it's not fair to give any forecast because it all depends. Maybe in 3 or 4 months, I can give a forecast because I would have a much better feeling than that.

All right. Thank you so much for answering. So ladies and gentlemen, therefore, we come to the end of today's earnings call. Thank you, everyone, for joining and all your questions. So should further question arise at a later time, please feel free to contact Mr. Schneck or Tanja Marinovic from Investor Relations. And also a big thank you to you Mr. Schneck and Mr. Otto for the time you took to answer all these questions and together through the presentation. Now as you say, knock on wood, much successful 2024. From my side, I wish you all a lovely remaining week and hand over again to Mr. Schneck for some final remarks.

Yes. Thank you very much for all your questions and your patience in our presentation. If you have any further questions, feel free to contact us, like I said, either on the investor shows that you see here listed or via Teams, e-mail or phone. We're always happy to answer. And if you have certain wishes on further details, of course, contact us, we will provide them. In some cases, we're not disclosing them in revenues -- in the annual statements or presentations for competitive situations, but we might disclose them to some of the analysts and investors that are interested in this information. So thanks very much. Have a nice week, and I hope to see you very soon. Thank you very much.

Goodbye.