Brockhaus Technologies AG

Good afternoon, ladies and gentlemen, and welcome to the Brockhaus Technologies AG update call on the first half year 2022. At this time, all participants have been placed on the listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to Marco Brockhaus.

Yeah, thank you. Good afternoon, everyone. Welcome to Brockhaus Technology earnings call for the first half year of 2022. Before we begin, I would like to point out that the slides we are presenting will afterwards be published, as usual, in the Investors Relations section of our website, BrockHouse-Technologies.com. After our presentation, we'll open the week's call for questions from your side. To be fair to everyone, please limit yourself to one question plus one follow-up. Thank you very much in advance. Before we present our results, I encourage all listeners to review the legal notice on page 2 of our presentation, which explains the understanding of forward-looking statements. Additionally, please refer to note 7 of our annual report 2021 on page 86 for a discussion on alternative performance measures, as well as reconciliations of non-GAAP figures, especially revenue before PPA, adjusted EBITDA, and adjusted EBIT. Please note that our EBITDA and EBIT adjustments only comprise share-based compensation, cost of the acquisition of subsidiaries, cost of equity transactions, as well as accounting effects from purchase price allocations. For information on risk factors that put court's actual results to differ materially from forward-looking statements, we kindly refer you to the Section on Risk and Opportunities in the Management Report 2021, page 56. Flipping over to page 3 and into the usual summary. Having already started into the year with a record Q1, we are very proud to say that H1 continued this momentum, showing new record levels with respect to all key performance indicators. Brockhouse Technologies generated revenue of €75.1 million in H1 2020, which represents lows of 234% compared to H1 2021. Adjusted EBITDA grew over proportionally by 954% to €26.9 million. This corresponds to a continued high adjusted EBITDA margin of 35.9%, and a margin expansion by 24.5 percentage points versus the previous year. Adjusted EBIT increased by 1,467% to €25.9 million, and free cash flow pre-tax grew by nearly tenfold to €16 million. But also, before adjustments, Preliminary revenue was 73.2 million Euro with EBITDA of 24.7 million Euro and EBIT of 15 million Euro. The EBIT is affected especially by PPA amortizations. A deep dive into the individual segments will follow over the next slides. On the back of the record numbers achieved in H1 2020, we confirm the full-year guidance with revenue between 140 to 150 million euro and a continued high-adjusted EBITDA margin of 35%. In addition, we are looking at a strong balance sheet quality of Wacom's technology, with cash and cash equivalents of 32.2 million euro as per Amazon, despite bike leasing having made an early voluntary repayment on one of the acquisition loans in the amount of 5.7 million euros. This was only possible due to their strong organic cash flow. On top of the record revenue in H1 2020, the order backlog within the group as for end of June is also standing at a very high level, providing visibility for the second half of the year and fueling our optimism. In view Of the very, very challenging market environment, including the pandemic, war in Ukraine, the energy crisis, inflation, and rising interest rates, our operating development clearly shows the high resilience of our business model. And let me summarize something. On the 31st of July 2017, we founded Brockhaus Technologies, As of today, it's only five years and two weeks on that date of 15th of August old. And I think what I just mentioned to you is a great achievement. With this brief summary, turning over to the next page and handing over to Harald, who has our finance team. Thank you very much, Marco, and welcome everyone from my side too. So let us just jump right into the quarterly revenue analysis on page four, starting at the top with bite leasing indicated by the light green bars. The increase that we see quarter over quarter reflects the company's seasonality during the year. The company generally records its highest volume of business in Q2 and Q3. By contrast, due to the lower demand for bicycles and e-bikes in the cold months of the year, volumes in Q1 and Q4 are significantly lower. That is why bike leasing nearly doubled revenue quarter over quarter to 35 million euros. Unfortunately, the last year comparison figures are not available since bike leasing only generated financial information according to German GAAP until we obtained control over the business with the acquisition end of November last year. But of course, we will give you a picture of the underlying growth of the operating KPIs later on in the presentation. Proceeding to ISFE in the middle of the page. Despite supply bottlenecks, we are very happy to report that revenue continued picking up with the revocation of many COVID-related travel restrictions, social distancing, and so on. As a result, IHSE outperformed both Q1 and Q2 significantly on a year-over-year basis. In terms of order backlog, the company saw an absolute record level in July, so only a few weeks after the official reporting date of our H1 disclosure. Therefore, we are looking very positively on the rest of the year for IGC. Last but not least, let's go to Pallas, shown on the bottom of the page. Their revenue was down 19.9% on the strong Q2 last year. Back then, you might remember, top line was boosted by sales of TET rigs for face masks, a COVID product. The same holds for Q1, which was also standing against tough comparables of last year. When you look, however, only at sales figures of the conventional core business products of Palas, the top line grew by 11% to last year's first half. In addition, both order backlog and inventories are on a very high level as per end of June 22. Taking that information into account, we are confident to see a stronger second half of the year. Clipping to the next page for the regional sales pitch, as you might know so far, ByteEasing has been focusing on Germany only, with first steps of expansion into Austria having been made. Therefore, all revenues here relate to India. ISSE saw a solid market development in EMEA, where revenue increased by 2% to 8.2 million euros. The most significant pickup of demand was reported for the America, where COVID did hit hard during the last two years. In the first half of this year, America's revenue grew by 61% to 3.9 million euros. While APAC was the only challenging region in Q1-22 with lockdown tempering business, this reversed in Q2, where we saw a strong sales development there in APAC. By realizing 2.8 million euros in the first half of 2022, revenue is now up 24% as compared to first half of last year. At Palas, the effects described before had the most significant effect on the EMEA region. That is because the largest mask test rig business last year was in EMEA. America saw a strong growth of approximately 19%, and the development in APAC is also quite positive. Compared to last year, revenue is 35% higher there. As mentioned before, order books and inventories are on a very high level, and on that basis, we are quite positive for the second half of the year with regard to pallet as well. Turning to the segment P&L table. I think revenue was presented comprehensively on this previous slide, and therefore we will focus on profitability here on this page. Byte Leasing had a gross profit margin of 64%. and an adjusted EBITDA margin of 47% and an adjusted EBIT margin of 46%. Bearing in mind the seasonality pattern that we elaborated on earlier, especially Q2 of this year was driving the profitability of bike losing in the reporting period. In addition to the major part of new business in Q1 22, was financed through a securitization in the form of a green bond. This structure allows bike leasing to refinance much cheaper, quicker, and more flexible, and therefore promotes a strong growth. With unchanged cash inflows at the point of selling the securitized leasing receivable, this source of financing does not meet the requirements for derequisition of the securitized lease receivables. And they therefore remain on the group's balance sheet. That is an IFRS specialty. Income from these leases is therefore recognized over their contractual term, which is in general 36 months. Even though this process is identical from a liquidity point of view, In an accounting perspective, this is in contrast to a four-facing transaction with derecognition of the lease receivables, which involves the realization of nearly all income from the corresponding lease in T0. In the second quarter, in contrast to that, the majority of the newly generated leases was conventionally four-fated, so sold off to financial partners. This allows for a leaner balance sheet and income is recognized immediately. This, of course, also drives profitability ratios. In order to aim for a more efficient capital structure, which would be also in line with the transaction-based business model, ByteEasing intends to further focus on financing options like this wherever possible. so keeping balance sheet lean and income realization to the extent possible in GVO. At ISSE, gross profit margin was 74.6%, and that's substantially above last year's 68.3%. In the prior year, H121, there were several unfavorable shifts in the product and customer mix, In addition to currently related effects and these effects did not reoccur this year. So the margin developed very nicely. At 20.1%, the adjusted EBITDA margin was also up compared to 2021. The same holds for the adjusted EBIT margin. This was primarily due to the increase in growth profit margin as well as the higher revenue level. At Pallas, gross profit margin of 79% is broadly on the same level as in H1 2021. With 22.8%, the adjusted EBITDA margin was lower though. This was mainly due to the interaction between the lower level of revenue and the existing fixed costs. This also affects the adjusted EBIT margin, which is below H1 21 as well. During the last month, the company already took measures to cut costs, and this should also increase the margin to sustainable levels when revenue increases in the future again. On an annual basis, Palast usually performs at margins clearly exceeding 30% on EBITDA. Lastly, in the central functions, costs were somewhat lower, which is essentially due to lower expenses for external providers of the diligence library. In conclusion, and summing up on the consolidated group level, revenue was 75.1 million euros, up 234% compared to last year. Gross profit margin was 68% and adjusted EBITDA margin 35.9%, bringing the group to an adjusted EBITDA in half a year of 26.9 million euros. The group's adjusted EBIT of 25 million euros makes a margin of 33% comparing to 7.1% a year ago. As mentioned before, the group had 32.2 million euros in cash. Flipping to the next page, we would like to give you a brief overview on the structure of our financial leverage at this point. You can also find that table in our half-year financial statement as well. on the top section of the table with the calculation of our net debt from loans. The first two line items of senior loans and subordinated loans mostly relate to the acquisition financing of our subsidiaries. Adding to that real estate loans and subtracting cash, we get to a net debt from loan of 98.6 million euros which corresponds to a decrease of 6.7 million euros compared to the beginning of this year. This was due to the strong free cash flow in the last six months. As you can see, especially senior loans were reduced substantially, considering we are looking at a period of only six months. In addition to the ongoing regular repayment, bike leasing made a voluntary early repayment of 5.7 million euros end of June due to the strong cash generation. The other financial liabilities include some rather technical items such as leasing liabilities, NCI pools and the success fee. The third block of the table shows the net debt from bike leasing financing business. Here we can see a 36% decrease from 8.4 million euros in the beginning of the year versus 5.3 million euros at the end of June. Coming up, our net debt decreased by 8.1 million euros to 110.9 million. Due to the lack of historical bite-leasing IFRS figures, we put that number into relation of our adjusted pro forma EBTA for last fiscal year. And that brings us to a leverage of 2.3 times, which is down from 2.5 times six months ago only. This is within our target corridor, and as we see, a conservative financing structure. This concludes the financial update, and handing over to Paul, who has our exhibition team.

Yeah, thank you, Harald, and also welcome everyone from my side. Let me provide you with a quick deep dive on horror businesses over the next couple of pages, starting with bike leasing. As mentioned before, before we obtained control over bike leasing with the acquisition end of November last year, bike leasing as a typical for private German mid-cap companies was only accounting according to German GAAP as mandatory for any private German company. Therefore, no comparable IFRS figures are available for the prior year period H1-21. However, the continued strong growth trend can be clearly illustrated by operating KPIs as follows now. The most important KPI, of course, that drives Bike Living's revenue is the number of bicycles facilitated through their digital platform. In H122, the number of facilitated bicycles grew by 40% to around 61,000 bicycles. As you can see from the previous two years, H1 typically comprises around 50% of the total number of facilitated bikes per year, thus balancing out the strong seasonality you see between the weaker Q1 and Q4 and stronger Q2 and Q3. In terms of its customer base on the platform, bike-using has now surpassed the amount of 40,000 corporate customers that are onboarded on their digital platform. Those corporates employ more than 2.1 million employees. that indirectly have access to our solution now. Keep in mind that when we signed the acquisition of Bike Leasing last June, the number of corporations on the platform still stood around 25,000 corporates, so roughly 15,000 more corporates onboarded since we announced the signing in June. Gladly, as already briefly mentioned in the opening summary, Bike Leasing on the back of its strong organic cash flow was able to make an early voluntary repayment in the amount of 5.7 million euros on one of the acquisition loans we used as part of last year's acquisition. Thus highlighting not only the high profitability, but also strong cash conversion of the B2B FinTech. Let me now use one more slide to provide you with some recent market data that were surveyed by Deloitte in their recent e-mobility survey from July this year. which very well underlines the strategic focus that we follow with bike leasing. According to Deloitte, as you can see here on the right-hand side, 60% of employees in Germany consider the opportunity for corporate bicycle leasing as attractive. However, only 21% of those employees have the opportunity to lease a company bicycle at the moment. This significant white space, which is still there in the market, is why our priority number one with bike-using remains to further expand market penetration by increasing the number of corporate customers on the bike-using platform. This is especially relevant as there is virtually no churn within one customer. Furthermore, 35% of employees that can lease a bicycle to their employer actually make use of the model. As you can see from our numbers in H1, this utilization rate, let's call it like this, within our customer base is still significantly below the 35% level, as bike leasing has historically only focused on priority number one, onboarding as many corporations as possible. Priority number two, however, is to drive the utilization rate upwards with already onboarded customers. Only thereafter, as priorities three and four, we work towards adding non-bike benefits to the platform and further driving international relations past Germany and Austria. Over to page 10 to give you a similar view on Palos now. H1-22 represented the second strongest H1 in Palos history, only beaten by the COVID-19 shield H1 last year, in which Palos showed a high number of filter mask test rates. Without accounting for the COVID shield business, which shrunk, as you can see here, from 2.9 million euros last year to only 500,000 euros in this year's H1, The actual core business of Pallas with optical instruments for ambient air measurement continued to grow double digits with 11% in H1 after having already grown 19% the year before. The growth trend hence is unbroken, even though distorted by the extraordinary business last year. In addition, revenue within the core business in H1 would have even looked better if the Chinese market would have not been affected by months-long lockdown, resulting in delayed revenue recognition. Consequently, order backlog at Palas reached a very high level, with alone 1.9 million euros that they stuck in China. Moving over to the next page for IHSE. After two years of pandemic with wide-ranging travel and contact restrictions, IHSE and KVM Tech were able to deliver a strong rebound with revenue growth of 17% in the first half year. As you can see from the quarterly revenue development shown on the right hand side here, both Q1 and Q2 this year were the highest since outbreak of the COVID-19 pandemic early 2020. Adjusted EBITDA margin improved to 20.1% as mentioned earlier as compared to 16.8% last year, However, it is still below the target pre-COVID level of 35%. This is mainly due to increased rates of activity post-COVID, the inclusion of the so far lower margin-tally impact, as well as ramp-up costs of the Chinese subsidies. Lastly, the supply chain for electronic parts, especially FPGA chips, remains very challenging, as you might know, and causes delayed revenue recognitions. Consequently, order backlog at IHSE reached a record high of 12.1 million euros, which on the flip side provides visibility and makes us optimistic for H2 this year. After that comprehensive deep dive into our current businesses, let me now give you a brief update on our current M&A activities. As always, as a brief reminder up front, We generally solve transaction opportunities from three different channels, namely A, the active screening of trade fairs, shows and corporate events, and proactive approach of companies by our M&A professionals. B, our industry network built on over 20 years in the German technology space. And lastly, C, our M&A advisor network. In the current market environment, we tend to especially focus on proprietary sourcing. This is also why we are currently in early stages of analyzing three potentially interesting companies that seem to fulfill our strict acquisition criteria, all of which are potential add-ons for our existing businesses and have been post-proprietary. Two businesses within the environmental technology space, the smaller one with 40% EBITDA margin and the larger one with around 25% EBITDA margin, as well as a benefit platform business where the exact margin under IFRS is still to be analyzed. While our deal flow continues to be strong and we stick to our envisaged run rate of one to two transactions per year on average, you can be ensured that we will remain as strict as before when it comes to identifying the right acquisitions for Broker Technologies. We do not feel any pressure to do acquisitions, as you know by now, but we'll only pull the trigger when we are convinced by a business, its technology and management teams.