CENIT Aktiengesellschaft (CSH) Earnings Call Transcript

Good morning, and a warm welcome to today's earnings call of the CENIT AG following the publication of the Q2 and H1 figures of 2025. The CEO, Peter Schneck; and the CFO, Dr. Johannes Fues, will speak in a moment and guide us through the presentation and the results. After the presentation, we will move on to a Q&A session where you have the possibility to place your questions directly to the management. We are looking forward to the presentation. And with this, I hand over to you, Mr. Schneck.

Thank you very much, and good morning, ladies and gentlemen. Thank you very much for participating in our today's earnings call for the CENIT AG. And of course, a very warm welcome. I'm very pleased to run the session here today together with my new colleague, Dr. Johannes Fues, who joined on 1st of July 2025. He will give, of course, a short intro to his background shortly. And before jumping into the figures that we would like to present today, I would like to start with a very brief summary outlining the key events in the first half year 2025. And to start with is what you can see here is on the M&A side, this is, of course, an acquisition that we have done in the United States last year. So it's Analysis Prime. And as you will see in the figures later on, we're struggling with this acquisition in a way that the forecasting is not in line with what we expected, as you heard already in my last earnings calls as well. We stripped this forecast, but as we have experienced now in the first half year, the stripping was maybe not harsh enough, and we are missing our figures. As a consequence, we had some changes in our management that are ongoing in the United States, and we are in the process of finishing this over the next days and weeks, hopefully. Then of course, we have updated our revenue outlook for Analysis Prime in 2025. And this is the reason why you will also see that we have a shortage in the guidance and in the forecasted figures for this year, revenue figures and then as a consequence, also a dip in the EBIT line. So as you all know, we had forecasted in the range of USD 28 million, which sums up to USD 25 million. And now the new update is more likely in the range of about USD 15 million that we have included. So you see this is a major bump. On the other side, the pipeline is growing. So what we have at the moment is a delivery issue. So it's not a pipeline issue. It's more likely a delivery issue in getting the deals transferred into revenue and basically performed in the U.S. So this is one of the reasons. We will come to this then in figures, but you will see that in the first half year figures, this resulted in a EUR 1.6 million loss on the EBIT side, which, of course, we had not forecasted. We had forecasted a positive figure, and this will result then also in our overall EBIT figure. And of course, for the second half of the year, honestly, we do not see that we will catch up this completely and cover this completely. So that's why you will also see that we have a different outlook. Then, and to give you a very brief view also on the challenging environment that we're facing in the European economy, as you all know, and you've heard this also from other companies, most of our customers are struggling, to be honest, when we talk about the automotive customers, as you all know and have heard over the last days, there is major cuts on their forecast on the EBIT side as well as the revenue side, of course, resulting in a struggling customer base. That is, on one hand, still looking into investments and adjustments to make sure that they keep their production in Europe. On the other hand, and this is what we see is, we see a reduction in license fees. So as I mentioned already in the first half year, we were facing customers that when they reduce their staff, of course, this also has an impact on the number of licenses or seats. And now with the new SaaS models, unfortunately, the customers have the opportunities to react much faster than they had in the past with the PLC. And this is, of course, something that sums up then to a miss that we have also in the operating business. So what we see is on one hand, our business is still a good base and good running. So the sales cycles are correct. And we see also an upcoming investment piece. On the other hand, what we, of course, also see is because of these reductions in licenses that we have a certain -- we want to call a churn of about 2%, which results then in EUR 1.4 million also less EBIT in the first half year, as you will see in the bridge that we will show you to explain our figures. Then on the internal project side, which is more likely the restructuring that we had announced, and I told you on the shareholder meeting as well as in our last call and also beginning of this year already, we are in the middle of a transition. So year 2025 for CENIT is a restructuring year where we have a lot of changes that we had already announced. One of them is, of course, project performance, where we had an impact of about EUR 4 million in the first half year figures. And of course, they were already planned. So they have no impact on our guidance because they are in line with what we had forecasted. On the other hand, what we see is that, we are more than in line with our expectations also on the results. So we have been a little faster, which resulted in less or, I would say, better EBIT outcome that we have, but less costs on one side. And this, of course, is a positive impact. So we're expecting all our planned EBIT results out of the project performance for this year and then, of course, also for next year with the full effect. The Project Bobst, for those who haven't heard about this yet, this is the increase of prices that we had in our existing customer base and also especially on the dormant accounts that hadn't been touched for quite a while. We run this through, and we will see the improvements in 2026. And of course, we have slight improvements already this year. So this is also in line and running very well. And besides this, we are, of course, running other projects internally that are fully in line with our expectations. Then when we look at 2025, the guidance, as you've seen in our announcement, but of course, also the ad hoc that we launched this week, Wednesday, we have adjusted the guidance, as you all know, because of the effects that I mentioned before, especially Analysis Prime misses, but also operational misses on the existing core business. We had forecasted revenues in the range of EUR 229 million to EUR 234 million. We will end up now, and this is our forecast better than EUR 205 million, which is slightly on the level that we had last year. And then, of course, on the EBIT side, this has also an impact. We had guided the EUR 6.8 million to EUR 7.3 million EBIT for this year. And because of the effects that I mentioned before, which is mainly the operational situation or economical situation in Europe as well as the Analysis Prime, which is the major portion. We are now heading for a loss of EUR 1.5 million for the full year. Of course, we will do our utmost to be in the range of, at least, a black zero. But at the moment, our guidance is conservative on a minus EUR 1.5 million EBIT side. So this is the brief summary that I would like to give you right upfront. And I think at this point, I would then for the explanation of the financial figures, hand over to my new colleague, Johannes. And Johannes, you are more than welcome to maybe give a very brief intro on your background.

Yes. Happy to do so. Good morning, Johannes Fues, my name. I am leading finance organizations for 15 years now, I think. I served as KATEK CFO. Some of you know me from that context. I served as a Board member with Kontron and really started with CENIT Group on the 1st of July this year. So 4 weeks ago, there's no better start than really starting with preparing the half year reports for the team. So what I'm going to do today is really guide you through the numbers, explain what is, maybe what is not. And then -- but also highlight some of the stuff that I think is worth noting, some positive effects that we see and some of those lead us to say that if you have the bigger context of the environmental factors right now to say that, that's really CENIT is showing a stable business momentum here first. And then also we're looking quite positive, not as positive as planned, but we're looking positive into the next quarters. So let's break it down. Revenues, you see here that we have an increase by 4.4%. This is just by the numbers, the strongest revenues we've seen in company history in the first half year. Obviously, this includes inorganic effects. If you deduct those, we have no organic growth at this time. But then again, this is the 2% that Peter mentioned in the beginning. Given the surroundings that we have, I say, CENIT is stable. What I think is worth noting is the gross margin, you see on the right side. We are close to 60% half year '25, and this is part of the long-term increase in this position. It's due to the fact that we are able to actually change the business mix to more services and software. So that is something a part of a bigger development there that is good. Yes. Let's come to the EBIT side of things. This is just half year to half year, half year '24 to half year '25, what has happened. And I think those of you who followed CENIT see all the factors and all the topics that you've seen before. We have a restructuring one-off that was booked mainly in Q1 that is affecting the numbers. But this is -- again, it's planned, and this is going to wear off. So it's fully in line with the expectations. We have a performance topic at Analysis Prime that we are handling. And I say that we're getting a grip on that. And obviously, we have side effects on the operating business, but these also are wearing off. So if you kind of take these topics and have to have a closer look at the Q1 really -- the Q2 really, that was published on Wednesday and today with the full details in the report, then you see some good stuff that I'd like to highlight. And yes, if we go forward, that is good. I think three topics to notice and guide you through the figures here. First is the sales, top line related topic. Second would be the results side of things. And then third would be cash and cash flow. As I said, sales, this is the 4.4% we've been looking at before. But really, it is if you kind of deduct and look deeper, yes, it is inorganic, part of the strategy and the operating churn, if you want to call it, so it is at 2% organic growth right now, but stable. What makes me really happy is the overall or as happy as you can be in such a situation, I might say, is that if you look closer at just the Q2, we've been positive in the EBIT. We've been positive in the net result. And so that is something that we obviously want to build on in the next quarters. And while we are not on the level that we included in the original plan, it is still a positive thing to mention. And part of that is the personnel reductions. If you look at the personnel expenses Q2 closely, then you see that we are really down to prior year on a like-for-like basis by 3% already. This is something that is an effect that is going to increase for the next quarters. And we are down, I think, at the 45% ratio in Q2. And obviously, this is also -- we have a team now that we can drive more business with. So you could expect to see this number decrease further. Third thing, cash. We have a strong cash position. We're looking at close to EUR 21 million in cash right now. And we have an operating cash flow of EUR 10 million, that is close to 10% first half year. Also that on a very stable level that I think is good. Yes, looking forward, I think, Peter, you look at the backlog, you see the indicator for what's happening in the next quarters.

Absolutely. So what we see here in the backlog, you see close to 10% increase compared to last year. One effect is, of course, also that we have Analysis Prime now fully included. The second effect is, of course, that we see more and more recurring businesses going into this SaaS business and building this up. And then, of course, the third effect, and this is the one that I like very much is, of course, we see also that we have larger customers in the -- on the operational side that are signing up with us. And then, of course, those projects will take a while until we can really deliver this and do all the work. But overall, you see here a very positive slide and has already Johannes mentioned, we had in the second quarter also on the operations side, very good feedback on our customer base besides, of course, that some of them have to adjust the number of licenses. They're very much willing to invest into digitalization to be more competitive. And this is already the first sign as we can see it here. So now if we go on the figures for the first half year by the segmentation and of course, also the product side or the revenue type, you see that we have a major increase on the consulting and services of about 12%. What I would like to recall here is, of course, there is the effect of Analysis Prime, which is purely consulting and services. So without this, we would be really on a net effect, so not a big increase. But of course, with Analysis Prime, we see this 12% and without we would be flat. On the CENIT software, yes, you see close to 3%. If you see the real figures, you see that this is depending on one or the other project, depending on when it is booked. So in this case, it has -- we were able to book it in the first half year. Overall, I think we see still, as we've seen this before, that our proprietary software is growing, is going forward, is a good product. And of course, with some changes that we are doing and some investments that we are doing, we're still focusing on expanding this portion, of course, also down the road, as you all know. Then on the third-party software, this is where you see the mentioned reduction of the licenses. So it's very hard for the sales team to sell, especially in this case, of course, this is more likely the Dassault software, where we have customers, where we are selling additional licenses or additional product, let's say it this way, but cutting some of the existing and former licenses due to the number of employees and seats that are using this. So this is the effect that you see here. So it's basically flat with a slight dip in there. If we then go into the segmentation, you see on the EIM business, which is our documentation business, basically also a flat development. This is depending, as you can see on the real figures when we have the EUR 20,070 to EUR 20,470. You see that this is more likely a slight dip, as I would say, or movement on this side. And then on the PLM side, there you see this close to 3% increase, but this increase, to be honest, is, of course, more likely driven by Analysis Prime that is part of PLM, so in our Segmentation Report, as you all know. If we then look at three customer highlights that I would like to mention in here, the first one that is key for us is the partnership that we have with Prima Power. Prima Power is an Italian manufacturer of very high-performing robotic machines and automation machines in the sheet metal processing. And we have been in a partnership with Prima for quite a while. For quite a while, Prima was using our software as a white label. And now with their new Giga Laser project that they have started, they are launching our software as FASTSUITE, so really under the name CENIT, because they are separating or showing the products now in a different way and of course, also want to sell additional services aside of our software. And this is why they have now focused on selling our software under the name of CENIT and want to, of course, use this brand, CENIT also as a digitalization software partner. So that's why we decided to separate this one. And what we can see now is with the Giga project that they have started, that this is really a booming market for our DFS, so Digital Factory Solutions. And we are expecting also for the second half of the year, quite some nice results out of this partnership. Then a real customer situation that we were able to sign up in the second quarter of this year. Stadler, as you all know, a rail manufacturing company from Switzerland. They are in the middle of running an SAP PLM migration with our SAP team and are moving now some of the information that they have from the Dassault System into SAP as well as Siemens system that they are running. And we expect also that there will be additional business for us down the road in this environment since we just started now with this project, but the volume is an interesting one for us and also allowed our Swiss team now to really outperform in the first half of this year. And I can say already for the full year because, of course, those contracts are heavy contracts for such a small entity as the Swiss team. And then the final one that I would like to mention is Bobst, also a Swiss team or a customer that is more likely in the folding machinery and I would say, the market leader worldwide in this environment. And they have signed up also SAP PLM project with us where we do the integration from the Dassault System into the existing ERP system, which is SAP. So this is also, of course, a major move for us. Bobst has been in former times, a customer of CENIT. Has then been handled by Dassault directly and now moved back to us. So we're entering into this customer situation again, and that's why it is -- I think, this is also a very outlining and good project for us that we would like to mention here, and it shows also that our Swiss team is now catching up and getting back into a very positive situation where we handle customers directly, which has not been the fact for a while. As you know, we also lost a switch -- Swatch for some years, and we're also working on this one to get them back. So if we then look at our forecast, you've seen that we had our guidance adjusted on the mid and long run. So until 2030, we are not changing our guidance. We are still very positive and see also the signs with the delays that we are facing now on the operational side, but we will catch this up and the market is there. The market is growing. So that's why we say our revenue target for 2030 is still the EUR 350 million, including, of course, some M&A portion. This is for sure, as you all know, we have and we'll still stick also on our buy-and-build strategy, which we will pause, as I mentioned already for this year and maybe also half of next year, we will see depending on what kind of things come up. But we're not actively seeking now for M&A investments. We still have to do our homework on the Analysis Prime side, and then we can continue. Then on the software side, we are, of course, still seeking for this contribution of more than 15% of our own proprietary software out of the software total sales that we do. Because of the acquisitions, we dipped down now a little bit close to the 10%. So there's still a way for us to go. And we are very confident that we will achieve this target and maybe even outperform this one. And then the final one is the EBIT or the sustainable EBIT margin that we have focused with 10-plus percent as we already had for 2025 forecasted. We wanted to be in the range of this 10% plus EBIT on the 2 digit. We did not achieve this. We missed this one, as you all know. But of course, this is still our effect down the road. And again, without the PPA effects that were also not included in the planning when this was set up, I think, in 2018, the targets that we were going after for 2025. So this is, in a nutshell, what we had to present today on our year 2025 first half year. And now I would say we're ready and steady for any questions from your side.

Yes. That sounds very good. Thank you very much for the numbers and the highlights. We will now move on to the Q&A session. [Operator Instructions] And we have a first participant, Cosmin Filker. Please, you should be able to speak now.

I hope you can hear me. First question would be the Prime development. Is it fair to assume that in the first half year, Analysis Prime's revenue was around EUR 6 million after you explained that organic growth was minus 2%?

Correct. The right assumption.

Can you just elaborate a little bit the reasons behind the weakness of Analysis Prime in the first half year? And how quickly can you improve the situation here?

Yes. I think the issue that we had, and I mentioned this already in some of our earlier calls, as you know, the U.S. teams are sometimes very enthusiastic on their forecasts. And we had already cut the forecast of our U.S. team by going through with them, the probability of delivering the pipeline, of course, first of all, closing the deals. And then, of course, the second thing is to deliver it with the team. And what happened is, I think that on the, I would say, working level, so the team that is responsible for the sales side, but of course, also on the other side for the delivery, they always reported the correct figures and also the capabilities and the availability of the different teams that are required for certain deliveries. Unfortunately, what happens on a management level, there was a quite, I would say, still very optimistic view then on this one. So they basically took the numbers and increased the numbers because they wanted to put pressure on the team. First of all, the team was not aware of this. So this was not backwards communicated. And the second thing was it was not realistic to deliver this. So what we did is then, when we saw this already in the first quarter that they were running short, which was not in line with the pipeline that we saw, because we have in the United States or for Analysis Prime, we had by the beginning of this year, a pipeline of EUR 55 million. This is the one that I went through also with the team. And of course, I could only go through the customer situations and found them also very realistic, which also paid down the road. If you look at where we are now, we have a pipeline that is in the range of EUR 58 million after we have already delivered this EUR 6-ish million in revenues. So you can see this is a strong side on the sales side. What is an issue is more likely the delivery. And again, there, the team that has to deliver presented a very realistic view on this, but this was a little outbound, I would say. And what we have done now is, we have changed the responsibility so that those people that are reporting this are now directly reporting into the figures that we are also looking into. We are in close contact with them. We are in the middle of changing some of the management in Analysis Prime. And of course, this makes us also very confident now that we will achieve those figures, because the figures that we have included now in our forecast, and this is why you see also this major dip is we basically went on what is pipeline with committed delivery, which is, of course, very conservative, but this is the best that we can include at the moment. And that's why we have those figures as they are.

And can you just say figure-wise, what would be the guidance for this year for Analysis Prime? The initial guidance was USD 28 million.

Correct. The initial one was in the range of -- was $28 million. And then basically, depending on the day of the -- of the euro conversion, about EUR 25 million. Now we will end up in the range of close to USD 15 million, which will then result in about EUR 12-ish million in EBIT that we had included for this year.

And let me be the ugly CFO to say this, this is not part of the guidance, but we are obviously happy to share any background information that we think is valuable for you guys to get a better feeling for where CENIT is moving.

So okay, lowering the guidance in total of the CENIT Group is not only based on the Analysis Prime weakness, but also on the European business weakness.

Correct.

It's both. It's the two -- the two factors.

Correct.

One more question regarding the project performance. Are the expenses almost fully included in the first half year? What do we expect in the second half year? And will there be the savings noticeable in 2025, the first savings from this project?

Yes. So to your first question, as we have shown, we had EUR 3.8 million. There will be a small dip in -- or additional sum of about EUR 300,000 to EUR 400,000 from our French team because this was delayed, because of the unions that we have in France. So this will be in the third quarter, another, like I said, EUR 300,000, EUR 400,000 that you will see, but then this is the total amount and then this is fully closed. And the results out of our -- then close to EUR 4 million performance costs, they are absolutely in line with what we expected and slightly better, because we were faster in some situations. So we had a very well-structured process and this paid off. So yes, this is absolutely in line. But Mr. Filker, this was also included in our first guidance already. So just record it. So we had included EUR 3.7 million -- EUR 3.77 million, I think. So this will be now a little bit higher. And the -- what I said, a little bit more positive results are eating up then, of course, the higher expenses on this side. So as we had included this, this will happen also this year. So we see this already coming, and we're very confident that this is also coming the way as we had scheduled and planned.

And just one last question. Just looking at your order backlog that increased by 10% and also that the first half year was heavily influenced by the new government, by the trade policies worldwide. And you still expect for the second half year, the same amount of sales as in the first half year. So you don't see any growth impulses for the second half year. For me, it seems a little bit pessimistic -- or are there any other influences that I'm not aware of?

Well, Mr. Filker, you're absolutely right. What we have done is, we had basically taken the first half year figures and extrapolated them to the second half of the year in the same way. I think what you are a little bit going for or focusing on is the typical, if I want to say, so hockey stick that we had in the past. There is potential that we can't get into this one, though I want to say that in the last year, so end of 2024, we also had already not the expected hockey stick. That's why we were maybe a little bit more conservative. That's one thing. The second thing is based on 2024, we said, well, maybe this is also -- or we know already that this is also the effect of the missing PLC deals that we had seen in the past. And now the changing business of going into the SaaS model means then also the recurring businesses. And then you don't have this increase in the last year. So I share your assumption that this is conservative, but I think we're at a point when we do an ad hoc and we do this kind of forecast that we would prefer to be more likely conservative and then to outperform than to launch in October new ad hoc saying we won't make it. So that's why we're a little bit more conservative. There is potential. But other than that, this was also part of your question. We don't see an operational down run, if you want to say so, it's the opposite. The sales team is doing a very good job in getting also new customer situations, because the customers are now aware. But in the first half year, we have not seen the investments or the money that has been allocated from the governments to the different entities. So when we talk about the defense business, for example, this money has not been spent and there has not been the availability then for those companies that are waiting on these investments, then, of course, also to do certain preparation work. So the good thing is we have a lot of situations where the customers already aligned with us and are waiting there to push the button, the order button. But unless they have a firm confirmation from the government allocations and orders, of course, they will not do this. So even in the automotive industry, where we all see that they are struggling, we see that the IT projects and the digitalization is really ongoing, and there is a lot of potential. But given the experience that we had also with some of the larger entities, as you all know, once they take a decision, it will take time until we also receive this order. So just last year, as you know, BMW decided to go with this all. We are in a situation where they -- or at least we have not received yet any order from BMW, let's say it this way. And these big larger entities now like Volkswagen and everything, it takes time until it boils down to us.

Let me maybe add a personal remark on that side. It's been a personal first time, never adjusted any guidance in my personal past to the capital markets, and that is not one I want to repeat. And so that's why you've seen that we say EUR 205 million or better. And of course, in such a situation, you tend to put a conservative perspective to that.

Yes. Thank you. And we move on to Mr. Kindermann. Mr. Kindermann, you should be able to speak and place your question.

First question would be on also Analysis Prime. From my understanding, in the second quarter, they did basically the same revenue, but the EBIT was much better with just minus 0.2. Did you change anything in the cost structure? Or what was the reason?

Yes. Yes. What we did, Mr. Kindermann, is of course, and this is part of this, I would say, enthusiastic delivery forecasting. They have built up quite a large team. And what we have done is we adjusted the staff to the delivery requirements and to the opportunities that we have there, and we are continuing doing this. So you will see now in the third quarter still another adjustment. We -- just by the end of July now, we have adjusted another minus 17 team members. And we are -- of course, what we are doing is making sure that we are profitable. And if there is a certain forecast that is very enthusiastic, then of course, you have to adjust the resources, and this is exactly what we have done.

Great. So you now have -- can utilize the existing team members to have a profitable Analysis Prime at the USD 50 million revenue?

Absolutely, Mr. Kindermann. I will meet with the team in a workshop again in August. And we might still have one or the other adjustment that we have to do. This is also sometimes an attitude thing of some of the team members. So this is ongoing. So we're still adjusting this, but I want to make sure that by the end of the year that -- or not by the end of the year, by the end of the year, we are in a positive environment, of course. But that on the way there, that we are not producing further losses because in the first half year, we had no months that was positive. So it was, of course, totally against our original plan that we, of course, also had included in our overall figures.

Okay. And then last question from my side would be if the project performance expenses are already in the cash flow included?

Yes.

That was short and precise. And we are waiting for some more participants raising their hands, which is the case. Mr. [indiscernible] you should be able to speak now.

Two short follow-ups. Maybe starting with backlog. How much of the backlog do you expect to convert in '25? And how much of the backlog is more orientated towards '26? Maybe this one first.

Well, I cannot give you figures that are exactly, because, as you know, there's always a slight motion sometimes in projects where you have delays or the customers are not ready. But out of this some that we have, I would say that about -- yes, the half -- more than half would be something that we delivered this year and the rest is in pipeline for the coming years, because there's, of course, also some of the SaaS contracts that are already included in this.

No, perfect explanation. And the second one would be maybe a bit of modeling and the personnel expenses. You already said that you see some improvements of the project performance. The expenses have been mostly in H1. Do you have a rough number in mind on how we should think about personnel expenses in Q3 and Q4? I think currently, we stand around EUR 24 million.

Maybe let me answer that. If you were looking at the '24, I guess, from the quarterly statement, Q2?