GFT Technologies SE (GFT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining today's conference call on the preliminary results for 2019 GFT Technologies SE. [Operator Instructions] I would now like to turn the conference over to Marika Lulay, CEO; and Dr. Jochen Ruetz, CFO of GFT. Please go ahead.

Thank you very much. Good morning, ladies and gentlemen. So welcome this morning to our call for our preliminary 9-month numbers for 2019 and also to talk about the guidance for 2020. Let's go to Page #3 of the presentation. Our strategy execution is on track. I'm very proud to share that news with you. We have exceeded our target for '19, which we have set beginning of '19. And so the revenue and earnings figures are a little bit above expectations. I'm sure Jochen will share with you the details later. Our client and sector diversification is ongoing and very successful. To share with you, we have won 60 new clients, which is really impressive, most of them in banking, in our core sector, but also in the newly addressed sectors like insurance and industry. The trends are very favorable for us. Digitization is a large market trend. And as we have reset our technological offering and we have chosen pretty good partners, whether it's AWS, Amazon or GCP, Google, Azure, Guidewire, they really help us to enter in that market. We have strengthened our IoT competence via 2 smaller acquisitions in Germany as we had decided in October '17 to enter into the industrial market. Obviously, those 2 acquisitions help us now to define our IoT offerings. We also proposed to keep the dividend at EUR 0.30, which is the same level as the year before. And just to remind you, this means now since the beginning, we pay dividends, which was 2008, we have never cut the dividends. We clearly feel we are in the right place to seize the thriving market opportunities, and therefore, we also look quite positive despite current circumstances where everybody talks about coronavirus. We look quite positive into 2020. But let me first share with you the facts on Page #4. You can see the growth in the -- except our top-2 clients. Just to remind top-2 clients are Deutsche Bank and Barclays. The dynamic growth is above 24%. We clearly speed up the growth, which already started in the last quarters. So we have drastically reduced the dependency on our top-2 clients. And the 5-year CAGR, if you would look back on the growth in the ex top-2, is 18%, which makes us believe quite well when looking, let's say, quite well on our future. We look into the client base because maybe you would now ask the question, "Well, hey, but have you built up a new concentration risk?" We didn't. We have won 60 new clients, and we have, therefore, widened our diversification. But more important, when you look into the client structure, you can see that the clients, for example, between EUR 10 million to EUR 40 million, we grew in 2019. So we are able to farm those clients because winning new clients is one very important element of success. But another very important element of success is obviously to then farm those clients and develop them further, and we were able to do that. The sector split has improved as planned. I'm happy to announce to you that our guidance, which we gave for insurance, and we wanted to reach 10%, we are a little bit above. We have reached 11%, and industry and others is still stable in '19 at 8%, 9%, actually 9% simply because the acquisitions we have done. One was in mid-2019, the other one was end '19. So probably they are the results for those 2 acquisitions you'll rather see in 2020 and not yet in '19. Banking remains in our core sector and will remain being our core sector for the future, which has now reached an 80% level. So to give you some more, let's say, details and background of the success in 2019. You might remember that we find exponential technology, let's say, offering, which for us is everything around DLT, artificial intelligence, blockchain, and we have reached our own guidance. We promised to ourselves that we want to grow the portion of projects with those technologies from 25% to 30%. We have achieved that. We have a strong reputation in the market for deep technology, and especially the cloud, which belongs obviously to an exponential technology. Projects on cloud are really of high demand and have strong dynamics. We have also set a target to ourselves to reach EUR 20 million with cloud projects in 2019, and we already achieved that number in Q3. So logically, we now are above -- are literally at EUR 26 million, EUR 27 million in revenues with cloud, and we see further strong growth into the cloud business. We also have extended, especially around the cloud business, our strategic partnerships. We have invested in training our people. We have defined a target to ourselves to achieve 500 trained and certified cloud experts. We have achieved that, and we have more than 150 experts for Guidewire. So these were just the, let's say, the business goals we have achieved. Let me hand now over to Jochen, who will share with you the financial results.

Thanks, Marika. And let's directly jump to Slide #7 and the key figures for 2019 at a glance. Revenue is at EUR 429 million, 4% up, as already said, versus previous year. If we take out the 2 acquisitions from '18 and the small 1 from '19, V-NEO and AXOOM, the organic growth is 1%. What is important, the first top line growth we've seen since 2016, so that's a positive news. Second bullet point, the EBITDA adjusted increased by 21%. But that, for sure, is influenced by the IFRS 16 effects that we have to put into our numbers, and the IFRS 16 effects on EBITDA is plus EUR 12.77 million, as shown in the second bullet point. If we would exclude that, we would be 11% below previous year's EBITDA adjusted. The EBITDA adjusted is burdened this year by 3 effects we've been naming throughout the quarters already, now the full year numbers. So we had restructuring charges significantly higher than in years before at minus EUR 4.13 million. In '18, it was only roughly EUR 1 million. We had underutilization beyond 2018 figures of minus EUR 1.4 million mainly from disturbances we had in line with our top-2 clients' revenue reductions. And the third point, currency effects. We had a negative effect of minus EUR 1.1 million, mainly coming from the pound, which strengthened, which is pretty much in line with previous years. Fourth bullet point, EBITDA is burdened, now taking out the word adjusted, is burdened by M&A effects, mainly earnouts for the V-NEO business and a bit of AXOOM integration costs. Overall, EBIT and EBT, of course, are below previous year numbers. We have one special effect inside mainly the EBT where it's very visible, which brings us above the EUR 18 million guidance that we have given, which is an IFRS 16 effect. So suddenly, we had a positive IFRS 16 in the fourth quarter of the year, and the reason was we were able to sublease a full floor in our U.K. office. We were a bit big there, and we were able to sublease it and from IFRS regulations, and we have to show this as a profit. So operationally, we are at EUR 18 million of EBT and EUR 57.2 million of EBITDA adjusted, and we have a positive EUR 700,000 IFRS 16 effect, which we were not anticipating when we updated the guidance after the Q3 call. Last bullet point, net income is somewhat burdened by a higher tax rate, which I will come back to on Slide 14. Move forward, Slide #8, focusing on the quarter at hand. Q4 stood at EUR 113 million of revenues, so significantly up versus Q3, 8%. Of course, this is always a classic Q4 effect we have because it is supported by fixed price projects often ending at the end of the year, so it's a bit over exaggerated, but it was a good fourth quarter. Also versus the fourth quarter of '18, we show growth of 9%. And the main contributors are the countries in Latin America and France. On the EBITDA, you see that we had a quite stable development throughout the year, far more stable than we have seen in 2018. Moving forward, Slide #9. Revenue by business segment. Now we have 2 business segments. And the first one we had to rename Americas, U.K. and we added the word APAC, so Asia Pacific, because we now have 2 subsidiaries in Asia, which is 1 in Hong Kong and 1 in Singapore, and we're growing business there, still small but growing. Therefore, we've updated our segment names and added Asia into Americas & UK. Overall, Americas, UK & APAC is up 8% versus previous year. And when we look at where it comes from, 1% is organic, 6% M&A and FX is nearly not important. Continental Europe plus/minus 0% with many zeros in between. So nothing organic, no M&A, no FX and it will be really interesting. We'll go to the next slide, which we, I think, should do immediately. Go to Slide #10 and dig 1 level deeper. I think you've got views to the table. This is the same business segment, but we differentiate between top-2 clients and all the other clients. So it's easier to see what is growing, what not. Looking at group, the GFT Group, the last 3 rows of the table, we see that the top-2 clients overall have declined by 26% from EUR 164 million to EUR 122 million. And in a nutshell, Barclays is contributing EUR 1.5 million of revenues in 2019, so very small. It's mainly Deutsche Bank, but we will maintain the wording of top-2 clients for the time being. When we look into where it comes from, we see a decline in top-2 clients in both business segments. So the main reductions come from the U.K., a bit the U.S. and again, Germany. So these are the markets where we saw the top-2, especially Deutsche Bank, reducing. Going to all other clients, we see in total, we've grown by 24%. If we take out a bit of V-NEO M&A effect because there was only 5 months of V-NEO in '18 and now we have 12 months, the true-true organic growth is 20%, still impressive number. And when we look at the business segments, we see the stronger growth is in Americas, U.K. & APAC, where we see 43%. Taking out V-NEO M&A effects, still 36% organic growth in that region. Continental Europe growing by 11%, mainly coming from France, Germany and Spain. Overall, client concentration has reduced from 40% with the top-2 clients last year -- sorry, 2018. It's already 2020, I have to get used to it. And in 2019, we have 28%. So it reduced from 40% to 28%. Going forward, just in a nutshell, it looks like 18% for next year. So it will go below 20%. So let's move on, Slide #11. Looking at the profitability by segment. As in the quarters before, for 2019, looking at EBITDA, adjusted or EBITDA is always inflicted by IFRS 16 effect. So '18 is without, '19 is including, therefore, very hard to compare. For this year, again, I will focus on EBT. And for next year on, it's easier to again look at EBITDA. From the EBT perspective, we do see that Americas, U.K. & APAC saw a stable profitability, which is linked to reducing business with the top-2 clients, higher sales expenses, but on top, good growth, especially in the Latin America market and in Canada via our insurance business. Looking at Continental Europe, we're a bit behind in Continental Europe. We had some restructuring expenses, mostly they happened in Continental Europe and the underutilization we were naming before. On top-2 clients we're reducing here as well, therefore, profitability reduced somewhat for Continental Europe. And last but not least, others. We do see that we have more non-allocatable costs in our holding or in our central functions, which is mainly driven by tax optimization, to be honest. In some of our markets, both allocations, branding fees, holding fees are not tax deductible or even causing import tax, and that's why we're currently allocating less cost, especially to Latin America. This is something we do on purpose. Now when we compare the 2019 to the '18 number, we see we're down EUR 4 million in EBT for the full year. And if we add up all the special effects I was giving before, which is the restructuring, we had EUR 3 million more in '19 versus '18; the underutilization, EUR 1.4 million more in '19 versus '18; a bit of FX, EUR 300,000 more in '19 versus '18; and then this one-off positive IFRS 16 effect, which gave us EUR 700,000 better than 2018. This all adds up to exactly EUR 4 million. So we're pretty close from the business perspective. Margins have been stable. We've lost top-2 business. We have increased revenues overall, gave us margin, but we have to increase our sales cost. So from the business side, we've been quite stable on the margin. We only lost it in infrastructure and underutilization. Moving forward, Slide #12, revenue by country. We have 3 countries in negative due to the top-2 clients, which is United Kingdom, the U.S., but only 5% so there the impact is limited, and Germany. We have 4 countries that are heavily growing or mainly organically: Brazil, Mexico, France, and we have Canada, which is the former V-NEO business, that is also significantly growing. We have added Hong Kong to the list because I already named Asia as a new market. And you do see, we already generated roughly EUR 4 million with clients from Hong Kong, which is mainly building a retail bank for Standard Chartered. So they will be on this list, hopefully, for a while to come. Moving forward, Slide 13. We have -- this is the only mistake we found so far in our presentation. The headline is wrong, 8 new entries. I'm sorry. We didn't -- we take all numbers. Obviously, the word 7 we missed. We have 8 new names on the client list versus 2018. You see them with the blue box around it. Only 3 I want to name: Standard Chartered, I already mentioned. We're building a digital bank for Standard Charter in Hong Kong, very interesting, attractive and might be quite reusable for other banks to build. And this already gave us more than EUR 3 million of revenues. What else? Google on the bottom in industry and others came in at EUR 4 million of revenues. So we do business directly with Google and through Google to end clients. That is a growing business, as Marika was already mentioning. That partnership is working. And last but not least, Trumpf, our biggest industrial client for IoT projects, whom we serve for Spain and Germany, just to mention those 3. Moving forward, Slide #14, profit and loss statement. Let's focus on the third bullet point first. If you -- looking at efficiency, how efficient was our personnel cost versus revenue, you have to take into account that cost of purchased services and personnel expenses are quite the same for us because we do buy IT experts when we purchase services. So if you combine personnel expenses and purchase services, if you then take out the one-offs, restructuring in both years and the underutilization, and then compare it to revenue, we are at 79%, and it was 78% last year. So yes, we have lost 1% of efficiency. This is probably partially part of the higher sales cost that we're currently carrying. Another item to mention again because it has popped up during all quarters is IFRS 16. It has reduced the other operating expense heavily, and at the same time, the cost went into the line depreciation and amortization. So this is what IFRS 16 does, it improves our EBITDA. Most of it is lost again on the EBIT level. That's roughly EUR 1 million inside the interest that is also IFRS 16 related. Income taxes, higher than we had thought. We had guided last time for 15% to 20%. Our real operational tax rate, so what our countries directly pay for the year, indeed stood at 20%, but we had deferred and aperiodic effects worth another 7 percentage points. So our average tax rate was 27% versus 12% last year. In last 2 years, we had positive aperiodic effects. This time, it was a negative. So it did swing to the other side. But I have to add, with our new Latin markets being very successful and getting more and more profitable, that our tax rate is changing a bit. Those markets are more complex when it comes to deductible cost. Therefore, our tax universe is broadening. For 2020, we therefore predict a tax rate of 20% to 25%. That's also the rate we see going forward. Coming to Slide #15, cash flow analysis. While a pity, also somewhat influenced by IFRS 16. However, let's focus on some KPIs. Net cash at the beginning of the period beginning of '19 was roughly minus EUR 60 million, and that's nearly where we ended it, at minus EUR 58 million. In-between, we have bought a company in Germany, and we've paid out dividends and we paid back some loans. Operating cash flow influenced by IFRS 16 was not as good as it was in 2018, where we had like nearly perfect working capital situation at the end of the year. It wasn't that perfect in 2019. We were nicely paid, worked well, but it was a good operating cash flow so far. What we have seen over the last 2 years change with reducing top-2 revenues, we also see the peak of our cash position at the end of the year flattened. We see the quarters being more balanced, not as steep an increase in the fourth quarter. We're overpaid quite often by Deutsche or paid very accurately at the end of the year. Now that Deutsche is getting less important, it is broader, we're adding Latin American clients. Therefore, we are facing a more stable net cash position quarter-over-quarter and not that big peak, positive peak at the end of the year. Doesn't change the overall average cash throughout the year. It's more the end of the year will not look as good as it used to do. Slide #16, the balance sheet, while we're looking at it every quarter this year, it has changed significantly only because of IFRS 16. Overall balance sheet is extended by nearly EUR 60 million on active assets, both sides of the balance sheet. Therefore, this has not changed versus Q3, Q2 and Q1. We do see equity has increased, and that's all to mention on this slide. If you want to see the IFRS 16 effects, we have a detailed slide in the appendix that gives the -- especially P&L effects coming from IFRS 16. Slide #17. But first of all, the shareholder structure has not changed versus a year ago, it's exactly the same numbers. And on dividend, Marika already said that we will propose EUR 0.30 and, therefore, still be stable and have reduced our dividend payout. Slide #18, employees by country. We see that we have ended the year on the highest FTE number we ever had in GFT, more than 5,200. We see an increase, especially in Brazil, Mexico and Canada. We had a decline in Spain, which is mainly due to the less buying from top-2 clients, which we delivered nearshore from Spain. We have an increase in Germany. But at the same time, we have restructuring in Germany, so we added AXOOM with 60 people. But you do see when you add 60 people to the beginning of the year, we have reduced 30 people on top. Therefore, Germany is a mixed story. Utilization stood at 89%, which is a good number in line with previous year, but it's not as picture-perfect as it used to be in the years '13, '14, '15. So currently, all that disturbance from a client reducing EUR 50 million of revenues, us growing it with other clients, gives some disturbance on the utilization rate. Once we balance this and once it flattens the development with the top-2 clients, utilization could pick up again. Coming to the outlook. Back to you, Marika.

Thank you very much, Jochen. So you might ask now what is in for 2020 and even what is in for the next years. And let me summarize it like this. We are clearly back on the growth path. We have proved in '19 that the reduction -- we could fully compensate the reductions in the top-2. And even better for 2020, we're now going to see net growth isn't without any acquisition, which acquisitions might come on top. But as usual, we'll talk about them once they're there. So let me go to Page #20 and share with you some numbers and also some steps we are taking towards more growth. We expect currently that we're going to grow the ex top-2 clients with 22% in 2020. So the growth in non-top-2 is unbroken. We clearly see momentum in the Guidewire market, in the insurance market. We think we're going to increase the penetration of the industry sector. And our first step into Asia, which we started mid-'18, and already in '19, you can see a quite interesting result in Hong Kong and Singapore, working for building virtual banks. We think we can extend that in 2020, and we'll deepen that. And clearly, cloud remains the key driver across many opportunities. When you look to the right side, I want to give you a kind of an idea where the sector split midterm going to go. So this is not a 2020 number but a midterm number. Midterm, we want to go for a split like 60% banking, remains our core sector, and 20% insurance and industry and others, each of them. Let me go a bit deeper in the -- let's say, the key drivers for future success. And let me start with the one which I think is the most important, which is we call it the cloud momentum. We clearly are the cloud innovation partner, both AWS and GCP. Google clearly see us as a very important partner. You see on the right side that we have more than tripled, literally more than doubled, literally tripled the revenues from '18 to '19. And we will literally double the numbers at least in 2020. Logically, we're also going to double the number of experts, which then will make us as one of the largest cloud experts, let's say, service providers in the financial services market in the world. One other proof point to share with you because that's really interesting. Again, mid-2018, we -- let's say, we sent one manager. We put him into a plane and sent him to Hong Kong and Singapore saying, "Fly over, find something." Honestly, it was not much more than this, probably the most naive expansion strategy you could have. And guess what? Within actually 6 months, so within '18, literally by end '18, we have opened 2 new clients in Hong Kong and Singapore. One is, as Jochen shared, Standard Chartered, who had won one of the Hong Kong banking licenses to build a virtual bank, and we became the partner for them to help them to build that. And that is quite a success, and it clearly proves our ability to differentiate us from our competitors. We did not even had the legal entities at that point in time when we negotiated. And clearly, the Asian market is full of competition, and you could imagine that they really understand technology. So us being able, as a complete unknown company with no footprint, no reference, actually no people on the ground, we honestly had to ship them all in and build it all up, was a quite decent success. And I'm pretty happy that Hong Kong -- Jochen made it immediately to our list of separate showing countries, not only under other. So we're going to continue that. And clearly, for that success, our relationship to AWS and GCP were fundamental and instrumental. And for sure, combining that with our experience, how to build modern new retail banks that you call it virtual bank, open bank, digital bank, this depends a bit on the market, which worked like more was -- that most was the competitive advantage. So we connected our knowledge we gained, for example, with the Spanish retail banks, with a technology knowledge, with our partnerships we have built up in the U.S., and we were able to succeed in the Asian market. The other momentum which really drives growth is the insurance momentum, which is clearly increasing traction with Guidewire. We are -- we have quite a lot of opportunities in the insurance market. The insurance market was always a bit, from a technology perspective, behind the banking market. However, they clearly want to industrialize and automate their IoT environment. And as they have a lot of legacy applications, they probably jumped from the [ Stonehenge ] to the new -- let's say, to the new areas immediately by using Guidewire on cloud. You might remember, I think we shared that already in 2019, we are building and implementing the first full suite implementation of Guidewire on cloud in France. So it's the first Guidewire on cloud, full suite implementation in Europe. And also, we have won an award with our client, Aviva in Italy, the Innovation Award by Guidewire to actually build, implement certain Guidewire modules for insurance company in Italy. And we currently see that many, many insurance companies, not all of them, go the -- use the bold approach like La MACIF and implement Guidewire full suite in one go. They usually -- especially in the countries like Spain, Italy, they rather go module for module. But we also see mergers now. For example, in Canada, 2 of our largest insurance clients have merged and both are implementing Guidewire. And this means that they use, obviously, the technology behind to also speed up the integration of the 2 companies, and we will be instrumental to that. So insurance and cloud, 2 separate, 2 different things. One is a sector, one is a technology, but both will drive growth this Q3. And on the industry side, I would say the -- let's say, the newest sector we started 2 years ago, because we were working for insurance already before, is now ready to start with the 2 acquisitions we have completed last year, we feel now well set. We have gained clients. We also have gained IoT solutions. The focus clearly is on the German Mittelstand, as we are located here in Germany, we are perfectly placed. However, we are also exploring global opportunities, and here comes an interesting connection. Large car manufacturers in the U.S., but also in Germany as well, but also in the U.S., are experimenting by, obviously, how they can use the data the cars are producing to build new business models and connect that, for example, with offerings like insurance on demand. However, the problem is not the data. Yes, the car produces a lot of data. The problem is how to get the data over the wire. Let's say, it's a mass problem. It's a lot of data through the air, so to speak. How to make that efficient? Which data? How to compromise and where to do the analysis? And together with Google -- and here comes our cloud partnership into the story. Together with Google, we have developed a solution. We call that connected car. We have demonstrated that solution several times in Google Next conferences. We developed a solution for the automotive industry to actually use Google tools to read and get the data from the cars, and we are currently discussing with car manufacturers how to use that. So this is not a typical IoT solution as you will think about like smart factory which, for example, we implemented for GS Metaal, but you see here the connection with our cloud technology competence and our industry offering. So the outlook, if we go to Page #24, based on all the things we just shared. With the guidance we are giving -- and let me do one statement first. Probably you were waiting for our sentence on the coronavirus. And I know there's probably some heard me coughing a bit, which obviously creates some interesting questions. So yes, we also have a bit of impact on the coronavirus. Our offices in Italy, obviously, we had to close one, and we can go into a little more details later. We had to send people working from home. So far, this is all under control, and it actually works quite well. However -- therefore, we have that -- we see moderate impact of the coronavirus for us in this moment. And the guidance we are giving for 2020 is revenue of EUR 455 million, which is roundabout 6%, 7% increase. On the adjusted EBITDA, we see an increase of 5%; EBITDA, 6%; EBT, 7%. And the decrease in revenues with total clients included is around 33%. So despite another heavy reduction of 33%, which is even bigger percentage-wise than the 2 previous years, we will see a net growth of 6%, and we feel quite confident with that number. We have started pretty well into Q1. However, the coronavirus cannot be ignored. Hence, we give that guidance for the time being. We see an unchanged dynamic in our sector and client diversification. And the insurance business, we want to grow to 15% this year, after 11% last year. And on the -- again, top-2 clients' growth is predicted with 22%. It's a bit below the 24% last year. Maybe there is a bit of an upside. Let's see how it goes, right? Now on the earnings side. Obviously, the EBT is growing by 7% last year but not much more, so it's more or less in line with the revenue growth. Reason is we want to continue investing into sales. We want to continue investing, building our technological expertise. And we have included further expenses for capacity adjustments so that we continue driving the company towards the right positioning with the right offering, and we want to simply grab the opportunities we see currently, especially in U.K., U.S. with the new markets, grab the momentum, and that requires investments into the company, into our knowledge and into our sales teams. And we're going to continue doing that in order to continuously grow. And once the revenue reduction with top-2 clients is even coming to an end or reducing, we're going to see, obviously, very interesting net growth rates, as you can imagine, when you see that below the top-2, we grow more than 20%. So let me go to Table #25, and I'll probably hand it over to Jochen.

25 is the classic picture that we have looked at already before. It, again, differentiates between top-2 clients and other clients, focusing on the last 3 rows. The numbers were already named by Marika. We do see the top-2 clients reduced by 33%, which is another roughly EUR 40 million hit we take from them. And all other clients growing by 22%, which is organically even exceeding the '19 numbers, which stood at 20%, and that should bring us overall to EUR 455 million in revenue. So this is more an information slide. Thanks for listening, and happy to take your questions.

[Operator Instructions] And the first question comes from the line of Andreas Wolf of Warburg Research.

It's Andreas Wolf, Warburg Research. Congratulations on a strong Q4 and exceeding your targets. My questions are regarding your bottom line guidance for 2020. So is it possible for you to outline the assumption that you have in the guidance for the coronavirus and what the impact of your growth initiatives is that you alluded to in your press release? So obviously, additional revenues will require ramp-up cost and sales and marketing cost first. So could you quantify these effects and maybe the third player as well the capacity adjustments that you alluded to during the presentation? That's my first set of questions. The second is regarding cloud growth. So obviously, you targeted all the number of cloud experts. Which of these 3 cloud provider areas will that be? Will that mainly be Google, Microsoft? It could be interesting just to be -- better to understand which of the project is more important for you. And then on the utilization, 89% is an outstanding figure. Does this mean that the experts you have on your payroll are fully billable? Or does the billable figure deviate from this number? And the fourth question would be on the tax rate for 2020. Anything that we should bear in mind?

Let me start with the financial questions. Bottom line 2020, yes, let's cover corona for a second. Overall, we will see growth of roughly how much is the EUR 26 million, which should come in at the EBITDA adjusted margin of 10-ish percent. At the same time, we need to compensate EUR 40 million we lose with the top-2 clients. And we always said the business with the top-2 clients is very efficient on delivery but especially on sales. It's roughly 5% more efficient than when we win in the same business. So we lose EUR 40 million. We rewin it with other clients, but this will cost us 5% margin. So we eat the margin we win on the growth side, again, by the reduction in top-2 clients, more or less. And then we will add another EUR 1.5 million of sales and innovation efforts. So this is what we plan to do. And that's probably why we are a bit behind what you guys have been anticipating. On the restructure side, we thought, and I think I named that number during the year, we could halve that from EUR 4 million to EUR 2 million. And at the year-end, the budget reductions coming again for Q1, we will see it's rather minus EUR 3 million of restructuring. And on the underutilization side, we think it'll halve, from EUR 1.4 million to EUR 700,000, the impact versus '19. On FX, we think it will just go away, right? Hopefully, at 0. The moderate corona, it's very hard to grab. They estimated it at up to EUR 1 million EBITDA adjusted effect. Utilization. How billable is the team? Well, the utilization we name is what we bill to clients. So we don't add anything else inside. Of course, on fixed-price projects, you could have under and overruns, and this is all happening. But overall, 89% is our billable rate towards clients. But please bear in mind, in the very strong times with a very high nearshore rate, we had to 91%. And therefore, those 2 points, they will matter. That -- on the 5,000 people, 4,200 people productive team, 2% utilization in average matter. And last but not least, the tax rate, I said it's 20% to 25%. And to be honest, we don't see special -- anything special coming from that. Of course, as always, aperiodic things covering the past. It usually comes when tax authorities release their reports to us, so we can only know then. But currently, our best knowledge is it will be 20% to 25% for 2020. Growth?

Yes. So the cloud growth. We have just published a press release also on that. So on the 500 cloud experts we have today, around half of them, 250, were trained and certified on GCP, on Google. AWS and Azure is the rest, where AWS is a bit bigger for 2020 when we go to the 1,000. We clearly see we're going to clearly push AWS forward. So probably for the 1,000, just to take rough numbers, probably it's 500 AWS; 350, 400 GCP; and maybe 100, 150 Azure. That's how we see it in the moment. We see a lot of growth for GCP in U.K. U.S., where we see a lot of growth with AWS more on the other markets, especially like Latin America. Azure and AWS are more in Europe, where [indiscernible] GCP and AWS depends, obviously, on the country in Asia.

Any more questions?

[Operator Instructions] And the next question comes from the line of Knud Hinkel of Pareto Securities.

Yes, I got a couple of them. First of all, on your top-2 clients, you have seen a decline of 26% in 2019, and you guide for some kind of acceleration in 2020. So my question is, is that just usual prudence? Or is -- are there some tangible reasons behind this AXOOM acceleration? That would be my first question. The second question is on operating leverage a bit because you said, okay, the sales and EBT, they are moving in parallel a little bit in 2020 because of financial reasons. My question would be why are also EBITDA and EBT moving in parallel. Because the [ plus 8 ] should be fixed to some extent or moving just under proportionally? And you also guided for an improved tax rate. So I have some problems to understand why they're moving parallel or they are guided to moving parallel in 2020. That would be my second question. Third question is on the EBITDA margin differential in different regions. Americas, U.K. you have achieved around 10%, a little bit below 10%; Continental Europe, around 40%. Could you remind me why there's that huge margin difference between the regions? If I look at the share of the top-2 clients, it looks pretty much the same in both regions, so that can't be the reason for that. So maybe you can give a little bit of color here. And then that would be my third question. Fourth question. On the growth guidance, can you say also a little bit -- you said you have alluded to the different areas where you want to grow cloud and insurance and on. Can you also say something on the region? So do you expect more of that in Americas & UK versus Continental Europe? Yes, that would be my 4 questions for the time being.

All right. Let me pick up the financials first. I start with operating leverage, EBITDA and EBT moving in parallel. Well, we don't see a major shift in depreciation. Amortization, which is the other number that counts, is also more or less unchanged. We've acquired another company. So we always have something dropping out. And with the new acquisitions, something being added to amortization. We believe our net debt won't change significantly. So the overall cost that is between EBITDA and EBT is expected to be constant versus 2019. And therefore, the gap between EBITDA adjusted, old and new, '18 and '19 and '20, is EUR 2 million and the same for the EBT. That's the only reasoning for that. On the EBITDA margins in the regions, yes, that is a bit special. I agree. We usually say we're -- to be honest, we're a 1-region company. We do sell a lot in our U.S. and U.K. markets. And they are part of the business segment, Americas, U.K. & APAC. But we deliver part of those revenues, a significant part, nearshore. And the nearshore locations are located in Spain and Poland and partially in Brazil, but that wouldn't be a problem because it would not go across business segments. But when we deliver from Spain and Poland, we show a margin in those markets. This means not all margins we generate with business we sell in the U.K. or the U.S. is shown in the U.K. and the U.S. Part of it goes into Continental Europe because of nearshoring, and that's why you cannot compare the margins. You would have to take out the nearshore effects, which you, as an analyst, sorry, you can't. And therefore, I'd -- we'd rather focus on the overall productivity and that would make more sense. Sorry for that. We will -- that's not supportive, right? And again, we are more of a 1-business segment company. It's more the revenues that it makes sense to look on business segment level, not the profitability.

Yes. I think the market is different in terms of clients and growth rates. That's why it makes sense to have the segments differentiated on the profit level, as you had just explained. Let me answer your question on the acceleration of reduction, where you said, "Well, why do the top-2 accelerate in reduction?" Percentage-wise, I agree. But it is the same, literally, EUR 40 million. It is supported by what we currently predict and judge. Now to be fair, that is obviously a prediction and judgment. It basically goes on the assumption that we do not win any new business in our biggest client, Deutsche, simply because they have not yet decided to go into new projects. And if they go into new projects, our current assumption is it would replace existing budgets. So therefore, we do not see a growth. And honestly speaking, from a client concentration risk and from our -- and based on our diversification strategy, we might not even want. So it's a prudent assumption, yes, but absolute number is the same than in 2019. Then your question on whether we should give a bit of, let's say, clarity, which region is growing more. Here is exactly why we have the separation of the regions: So Americas, U.K., APAC, excluding top-2, should grow by 26%; Continental Europe by 18%. So clearly, we see more growth in our U.K., U.S. & Latin America region than in Continental Europe. The reduction of the top-2 clients relatively to each other is more or less the same.

Okay. May I ask a follow-up question, if that's okay?

Go ahead.

Okay. Regarding the number of cloud experts, you guided for an increase from 500 to 1,000. I guess the bulk of that comes from internal qualification measures. Obviously, you hire a lot of -- or do you hire them from outside?

We would love to hire them all from outside and keep the existing people just billable. But as a matter of fact, they don't exist. So we have to train and we do train. Based on our partnership, we get all this training for free. So we only have to invest time and effort by our people, and I can share with you they happily do that even beyond working hours because they see that also as an investment into their market value. So we have no issue in training our people, and it's highly welcome and they simply do that. So no -- yes, we also hire some people, and maybe there are some cloud experts, but that's -- you can ignore the number. You really ignore the number.

The next question is from [ Lukas Spang ] of [ Junolyst ].

Two questions from my side. At the end of last year, you acquired AXOOM. Can you talk a little bit about the strategic fit of this acquisition? What can we expect in the future due to this acquisition? And second question is about your midterm targets. You suspended them at the beginning of last year. So is there anything new from this side? Or should we expect anything changing on that? That would be my 2 questions.

So let me take your question around AXOOM. Yes, we have acquired AXOOM but not only AXOOM. We also acquired in-GmbH, end 2019 but formally on January 1, 2020, but obviously, it was prepared all last year. And both companies together clearly strengthen our solution competence for IoT solutions, like we have sphinx open online, which is an IoT platform which we already have sold several clients. We already partnered with in-GmbH before, so this is not brand new. We just now own the company as well. And also, for example, building the solution connected car, we also included the people. And for sure, Trumpf, who was the previous owner of AXOOM, became our current largest client in industry and stays probably being the large client also in 2020. On the midterm guidance. Yes, we suspended, and we have currently no intention to give a new midterm guidance. We simply focus on the current growth, I think, sharing with you that we grow ex top-2 20% is the number -- it's more than 20%. We feel quite confident, but you might appreciate that the impact of the top-2 revenue reduction still makes it difficult to do calculations, so we would usually. If we would do midterm guidance, it will be based on Excel assumptions, which, honestly speaking, can be debated. So we honestly simply think, "Let's go that way. Let's diversify the client, conquer the market, improve the EBT." That is our strategy, and that's what we're going to do. And once we would feel confident to predict a number, within 3, 4 years, we would do so. But currently, we think this will be just Excel numbering and doesn't really give you any -- actually, any true information.

The next question is from Andreas Schmidt (sic) [ Alexandre Schmidt ] of Elwood Asset Management. We would go the next question. And the next question is from the line of Andreas Wolf of Warburg Research.

A quick follow-up, if I may. So on the automotive sector that you mentioned during the -- your presentation. There is a number of automotive players that collect data themselves, like BMW, et cetera, helped by data providers. Do those players have any intention to cooperate with you or share the data that they collected themselves because obviously they missed the link to the insurance sector that they actually are so familiar with?

Maybe I need to ask you to repeat the question. What I understood is you were asking whether the automotive players are ready to share the data?

Yes, basically because many of them collect data already, like BMW, helped by Deutsche Telekom, as far as I know, and some other players as well. I'm just curious whether -- or to what extent there are new business opportunities for you in that area, apart from Google, who is collecting data with their mobile devices?

Yes. So let me see how I answer the question. So yes, they all collect data today already. So the trick is not collecting the data. The trick is compressing the data into, let's say, a format which you can simply transfer over the wire, which then the telecommunication providers can simply handle. And yes, offering that set of data to other third parties, like insurance companies, and then in which way and forward to allow them to offer new business models. And insurance on demand was just one example. Our part of that -- asking what's the GFT part of that is twofold: a, you need a special architecture in order to program those solutions. If you do not do that proper, you simply could not handle that 60 million cars at the same time, send data over the wire. So I mean theoretically, it's easy to collect data and send them over the wire. I mean for 1 car, easy-easy. If you do that in parallel for 60 million cars online at the same time, that's a different discussion and it's a different cost level. So we have built a certain reference architecture, how to do that with GCP tools, which could also be done with other cloud provider tools, but we've done it for GCP. And second, you then need to build a certain solution on the receiving end. So our part of it could be either providing that reference architecture, and whoever implements a solution will have to use the reference architecture then, for example, pay something. Or we even help the clients to build those solutions, use the Google tools like GCP analytics to build the solution and then run it. This could be either done classic, as on project basis. You just build the solution, charge them, that's it. Or we would build a solution and then go into transaction-based pricing, which then the music starts, right? So we are at the beginning of that business. So I cannot yet predict when exactly, how and who and when we'll do that, but you can see it. Everybody talks about it. And I'm pretty sure this opens for us pretty new, interesting, let's say, opportunities to go into new business models.

The next question is from the line of Alexandre Schmidt of Elwood Asset Management.

I just have a -- you talked a lot about the exponential technology, especially cloud and IoT. Do you -- are you hiring in these areas? What kind of revenue do you expect for the next year? And what's the overall investment? That's the first one. And the second one is with your revenue by country. And I'd say the U.K. is being one of the largest. Do you think that the negotiations between the EU and the U.K. government could affect banks' decisions of investing in the country in terms of improving their technologies and APIs, et cetera? Do you think that could be affected? Yes, that's the second.

So yes, technologies like artificial intelligence or blockchain besides the cloud are part of our 30% portion of revenues with exponential technologies, so 30% of the 4 30 and [ embed ] in calculation, as Jochen, the CFO, knows, but I think around something like EUR 120 million or so. That is the combined number of which, for sure, AI, blockchain are the smaller numbers because cloud is the more bigger number. But we have implemented already quite some interesting artificial intelligence solutions. For example, we built an antifraud solution for insurance companies based on machine learning, artificial intelligence in Italy. This also went public. Blockchain, interesting discussion. DLT, I would rather extend it to the DLT question. It actually was a hype, literally. And I explicitly do not talk of cryptocurrencies, which is another portion of the whole DLT business. So we are not involved in the cryptocurrencies. But we have built solutions based on DLT actually for -- also for banks. For example, we built a so-called factoring solution in Italy based on DLT. It came a bit to on hold. So currently, the hype is a bit gone on the DLT side. I expect this to pick up again in the next probably 18, 24 months, classic with technologies is just always the same. First, it's nobody understands it, then there is a big hype. Everybody thinks it would actually completely change the world, then people understand there is a limited -- let's say, a limited way to use it, then it becomes normal. And I think DLT is currently in its kind of depression mode and then will come back again. The artificial intelligence is clearly on its race. It's more and more coming, more and more clients are using it for the different solutions. And we do work with different, let's say, artificial intelligence components from deep learning, machine learning, whether it's bots, et cetera, et cetera. On the U.K. Brexit -- and actually, we do not guide individual revenues per technology. That honestly would be a bit complicated especially on the new technologies, because easily, it could swing by EUR 5 million up or down, but it's a smaller portion of the EUR 120 million. On the U.K. Brexit thing, well, that actually accompanies us since '16. And I think we always urged. First, nobody thought it would happen, then it happened. Then everybody saw the way, they've gone a step out, took them a little bit longer. What we currently see is that the banks are very well prepared to deal with the Brexit in terms of data, that they have the data and how they actually change their own companies. We hope that once the negotiations are finished, that if the regulation in the U.K. is a bit less rigid than at the continent, which is what they all think. But then actually, there's even more investment into London as a finance center, probably similar to Singapore. So we rather see a positive case for us in London. And we also rather see that if then -- obviously, a U.K. bank wants to continue to operate in Europe, they still must comply with the European regulatory, which means they have to simply do both. So I'd say there is either no impact or a positive impact. And we see currently no restrictions for travel or all these discussions which happened in the past, where people thought that maybe nearshore suppliers like us could not travel to U.K. anymore back and forth. This all obviously has been regulated. So we are quite relaxed when it comes to Brexit.

[Operator Instructions] And there are no more questions at this time. I hand back to the presenters for closing comments.

Thank you very much. Well, 60 minutes into the call, it took us a while. How is this going forward? Preliminary figures are now public. We will go into finalizing them. This will take us until early April. Don't expect any surprises. As always, preliminary is pretty close, matching to the financials that we finally release. If you have any questions in between, please come our way. If any questions have not been answered today, come to our IR manager, Karl Kompe. He will forward to us, and we will answer. And then we will meet again already quite soon, right, with the Q1 call coming up early May. Thank you very much.

Thank you very much to everybody. It was an intense call, and thanks for all your questions and speak to you again in some weeks.

Bye-bye.

Bye-Bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.