secunet Security Networks Aktiengesellschaft (YSN.DE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to today's earnings call of the secunet Security Networks AG on the occasion of the financial figures for the first half of the year 2025. I would like to welcome CEO, Marc-Julian Siewert; and CFO, Jessica Nospers, who will take you through the figures in a moment. In the background and with us throughout this call is Director, Risk Management and Sustainability, Dr. Kay Rathke. After the presentation, you will, of course, have the opportunity to ask your questions in the Q&A session. And with that, I would like to give the floor to you, Mr. Siewert.

Thank you very much. A very good morning, dear ladies and gentlemen. Welcome to the earnings call for the first half year of 2025, which my colleague, Jessica Nospers, and I are delighted to welcome you to. Before we talk figures, let's say three facts about secunet. At secunet, we do everything every single day to make the life of -- in Germany and Europe secure, especially in the digital space. Second, we protect sovereignty and thus, our democracy. And third, we try every day to make our customers happy and improve the experience they have when using our products and increase efficiency as a main factor of their work. So we are delighted to look at the first half year of 2025, where we were able to achieve very positive strong results in the national and the international market. The outstanding business developments have led to very positive growth in sales and EBIT in the financial first half year. And the outlook for incoming orders continues to develop at an above-average rate and is very promising for the rest of the year and going forward. So today, we are going to look at the financial figures briefly at the strategy and our forecast and obviously then jump into the Q&A. And with this, my colleague, Jessica Nospers, our CFO, will take you through the main financial figures in detail.

Thank you very much, Marc-Julian, and also a very warm welcome from me to all of you, too. So when it comes to the financial figures, please, [ Elmar, ] click to the next 2 pages exactly. We are very delighted to present a much higher revenue in the first half of 2025 compared to the first half of 2024. We have increasing revenue in both Public and the Business Sector, and it is basically a very strong Q1, which pushed the first half revenue to this great height. We have growth in all segments, as I said before. Next page, please. And another one. So EBIT also increased considerably from EUR 1.4 million to EUR 7.2 million. It grows much more than revenue, most of all a fixed cost depression and also expenditure discipline and a favorable product mix. Next page, please. We could also grow our international and domestic sales. The share of international sales has increased a little bit from 9% to 11%, but also applied to a much higher revenue base. Next page, please. So we can see growth in both the Public sector and also the Business Sector, and the Public Sector continues to be the most dominant sector, representing 89% of our all -- overall revenue. Next page, please. Cash flow is still strong, but as usual, as a seasonal pattern in the first half, where we have, let's say, using up the cash that we make in the very strong fourth quarter. Also, we pay our dividends, which is reflected in the financing activities and the CapEx for investing is also usually very seasonal in the second half of the year. Next page, please. The order development, and it is reduced a little bit. So we have order backlog of 192.5% (sic) [ EUR 192.5 million ], also reflecting the very strong first half and also the late decision on the German federal budget. This also explains why our prognosis stays the same, but we will come to that certainly at a later point. And this is it, and I ask Marc-Julian to take over, please.

Thank you very much, Jessica. Thanks for the great numbers. And on the next slide, is very short. It's a little bit of background about me to answer some of the questions asked. So I was delighted to join secunet as CEO on July 1. And I'm currently meeting everyone, and I'm really impressed with the people around here at secunet. And the core asset are the people after all and also with our customers. So I was previously 6 years on the Board of Veridos GmbH and led the company for 3 years as CEO. And obviously, before I had many, especially international positions. But enough about me, more important, we talk about secunet going forward. And as a part of the new direction, we are developing our strategy as an implementation tool to achieve our ambition, which is really to safeguard the sovereignty of Europe and Germany as partner of the Federal -- security partner of the Federal Republic of Germany and prevent cyber-attacks in Germany, Europe and around the NATO countries and official institutions. So in everything we do, we focus on security, sovereignty and our customers' needs. And some highlights from the different sectors are first, secunet becomes a cloud-native platform provider, and secunet continues to support our customers with the most secure integrated hardware and software infrastructure including the transformation into the cloud. Second, secunet helps Europe and Germany as well as NATO with technological security and sovereignty. We see great potential, especially in the defense and space sector in the years to come. Thirdly, we are setting a new standard in a multi-cloud landscape as we are the only certified sovereign cloud provider for Red Hat OpenShift so far and the first with an approved cloud offering for classified information. And fourth, secunet is driving the internationalization forward. We are developing strategic portfolio elements, which enable us to create interoperability between European countries, EU member states, NATO and other institutions, while always maintaining security and sovereignty. So all in all, I believe that I have joined a remarkable company, and I'm really looking forward together with team to create the future, which is full of opportunities and potential that we are going to pull up in the years to come. And we see on the next slide, the basis of all this is that we can shape the future build on these several pillars by driving innovation also from a very strong track record and very strong past. And we are doing this and continuing the growth path, but also controlling the cost, as Jessica mentioned before, based on the four most important points. Again, our employees, which are the #1 asset we have, the secunet customers, which it is really inspiring to speak to these customers, to learn from these customers and to speak and learn from our employees. Thirdly, you and the people behind you, the secunet shareholders. And fourthly, our sovereign and secure technology stack out of scalable software, hardware and cloud platforms. So we are daily designing the future based on these pillars in order to continue the growth of the company and in order to continue to shape the security landscape in Europe and protect our countries from the ever-increasing cybersecurity risks that we see every day. And by doing that, we can also confirm our prognosis and outlook for 2025, as shown on the next slide, with EUR 425 million approximately in revenue, an EBIT margin of 9.5% to 11.5%, EBITDA margin of 14.5% to 16.5%, and we are looking at a dividend, working towards a dividend per share of EUR 2.73. And with this, I'm really looking forward to your questions. Thank you very much for being here.

Yes. Thank you very much for the presentation. [Operator Instructions] And we have the first participant with a question. Mr. Mueller, you should be able to speak now.

Yes. I would have a question to you, Mr. Siewert probably is your first call, so maybe a bit more vague, but -- if you could share your view on the whole government spending topic. So when do you expect first orders to come? And what's your view of the new government? And then also beyond the first orders, maybe if you could share your view on the spending momentum. So how do you see the cycle? And when maybe do you expect the peak of spending towards second half solutions?

Thank you very much, Mr. Mueller. It's probably one of the most important operational questions that we face that I learned about that we face every day. And the good news is that we had such a strong first half year, even though the official Bundes household has not yet finally been released. And with this, this is the basis for the actual spending that is going to come. So we expect this to be confirmed in September. And then the purchasing will start going forward for next year and the years to come with the peak, hard to define in all honesty, yet it will definitely last until the end of this decade as we see the spending increasing and the operationalization of the budgets in Germany, and then also subsequentially throughout Europe and institutions over the next years. So we are preparing ourselves to be ready to act fast starting from -- in Q4. I hope that answers the question to an extent.

Yes. Very helpful.

Thank you very much. And we get to the next participant. Dr. Kalliwoda, you should be able to speak now and place your question.

Can you hear me?

We can hear you. Yes.

Very good. Yes, Mr. Siewert and Ms. Nospers, this defense and space sector, can you give us some more details about order volume you like to expect in next 1, 2 years? This would be my first question. And my second question is, it's good that your margins are improving because in last years, you had nice sales growth. You bought your integrated companies, and the margins came back a bit. So -- but the integration activities, I think, are going well. Can you give us some more insight? You said the guidance on the EBIT margin will be between 9% and 11.5%. Do you expect then in 2026 and 2027 higher margins, please?

Dr. Kalliwoda, thank you very much for your questions. I would take these questions. First of all, we generally do not give too many information when it comes to info that is related to the non-segment information. But we can say that the defense sector is roughly a quarter of our total sales. We understand from our defense customers that they are, let's say, getting ready for the new budget and that they are having a planning that is for more than just 1 year. We do not have actually concrete information on order volumes coming in. We have a good feeling, but we do not share the feeling with you. But we are very certain that we are getting in the last quarter of the year order -- orders that we are going to execute, and orders are incoming, let's say, on a daily basis. When it comes to the margin, we confirm our prognosis, it is a bit difficult for us to give you more concrete numbers on this. I think the range is still valid for this year. Let me explain you why this is the case. The federal budget was coming in very late. We have prepared ourselves for this because usually, the budget is first, and then we see that the customers are, let's say, preparing and thinking about what they are doing with the budget that they receive. So this usually happens in November and December so that customers have, let's say, plenty of time. They usually use 3 to 6 months to get their planning on their projects ready and then they start ordering with us. So from -- for this year, the things are a little bit different. So they only have, let's say, 6 to 8 weeks for their project planning, and they certainly did some of the planning before, but the concrete numbers are available to them only now. So what we've done is that we had a little bit of preproduction for our defense customers because production for the defense sector usually takes a little bit longer. So we are making sure that we are ready and stock properly for the orders to come in the last half year and also quarter. But we are also very much looking to the cash flow, making sure that we are not overstocking or stocking the wrong items. So you can be sure that we are in a continuous discussion with our customers. Nevertheless, an order in the defense sector might be between, let's say, EUR 10 million and EUR 20 million, and it will all be very focused in the last quarter and maybe even November and December. And it is always possible that things are a little bit difficult, and we are working with the organization very much to be ready for November and December. We are used to it to a certain extent, certainly, but it will put extra pressure on the organization in this last quarter because of the late budget. So we are not having any signs that we are not reaching our prognosis, but also we do not have any signs that we are much faster this year -- so that we could increase our prognosis or be more detailed for the EBIT margin. Is your question answered with that or did I miss something?

Yes. Sure. Okay. And you included my question with the margins. You said you can't say so many details about '26.

For '26, we're usually giving our prognosis in January '26, and we are currently putting together our budget. So even I do not 100% know where we are going to stand in 2026. But certainly, we are working on giving you what you expect growth and also to a certain extent, we are looking to improve our margin, which we do not only do for you, dear investors and analysts, but also for ourselves because we are very focused on efficiency and growth and healthy growth also.

Thank you very much. And we move on to the next participant, [ Mr. Marinoni, ] you should be able to speak now.

With private bank and to be honest, I have really a follow-up question regarding your full year guidance. You mentioned that you confirm your EBIT margin target of 9.5% to 11.5%. Given the tailwind from the first half of the current business where you have been better by roughly 3 percentage points, don't you think that your guidance is really very conservative and maybe that your true low end of the guidance may be at least 10%? That's my first question. And the second question is again about your order backlog. You mentioned that your current order backlog amounts to EUR 192 million. That's my question over which period are revenues generated. And finally, it's about your Business segment. Obviously, your EBIT margin in this segment was below last year. Can you give a little bit insight about this development?

Yes. Let me maybe start with the order backlog. I think in the order backlog, you can see very well that there was an impact of the late federal business to our numbers. We had some orders in late 2024 that couldn't be executed anymore in '24. And so they came into -- in the first quarter '25. increasing considerably the sales in the first quarter '25. But now you see that, let's say, the preliminary federal budget is used up and also in the defense sector a little bit that our customers are preparing for a longer view. So they're not only preparing for the current year, but they are preparing for the special funds coming in. And it is a different, let's say, preparation cycle. So you can see in our order backlog, which is below last year that this is already reflected in sales to a certain extent, reflecting the federal budget delay, let's say. And that is also why you might consider our margin development rather conservative. But it is really difficult with this late federal budget and the pressure is very much on the last quarter. And as we know it from before, the seasonal pattern is very much usual in the fourth quarter, but also we have the issue that much more orders are going to come in, in the third and fourth quarter and need to be executed. And there could always be the same situation that not all orders can be executed in '25, but they are going to go to '26. So we are having a huge potential from the special funds and also from the new federal budget. But also as it is coming very late in this year, we see this potential to be realized rather in the year '26 and afterwards. Order backlog margin conservation. And there was another question, [ Mr. Marinoni, ] which was...

Yes. It was about your Business Sector if it was slightly below last year. Maybe you can give a little bit insight about this development.

Sure. Happy to do so. So we see a little uptick in the demand in the Business Sector. We -- basically, our Business Sector is can be divided into two, let's say, business units or two different businesses. First of all, the eHealth business, which is health care, providing to health care. And the second is, let's say, classic industry, which has a certain level of regulation. And the classic industry with a certain level of regulation, we see that there is an increased demand for our SINA solutions, which leads to a different product mix and also higher cost of sales. That's the first thing that is, let's say, explaining the higher sales, but that's a little bit lower operating margin. And the second thing that we had is that we -- last year, we could capitalize on some of the assets that we need for the eHealth market for the market that is turning to an as-a-service market. And this capitalization also, let's say, pushed the EBIT margin a little bit in the last half -- first half 2024.