Brockhaus Technologies AG

Hello, ladies and gentlemen, and welcome to the Brockhaus Technologies AG investor update call for the first half year results in 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Marco Brockhaus.

Yeah, thank you, and good afternoon, everyone. Welcome to Brockhaus Technologies earnings call for the first half of fiscal year 2021. Before we begin, I would like to point out that the slides we are presenting will afterwards be published in the Investors Relations section of our website, brockhaus-technologies.com. After our presentation, we will open the call to 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 two of our presentation, which explains the understanding of forward-looking statements. Additionally, please refer to note six of our annual report 2022 on page 85 for a discussion on alternative performance measures, as well as the reconciliation of non-GAAP figures. especially adjusted EBITDA and adjusted EBIT. Please note that our EBITDA and EBIT adjustments only comprise share-based compensation, cost of the acquisitions of subsidiaries, income from the sale of real estate, as well as accounting effects from purchase price allocations. For information on risk factors that could cause actual results to differ materially from forward-looking statements, we kindly refer you to the section on risks and opportunities in the management report 2022, starting on page 59. Flipping over to page three and into the usual summary, even though I'm repeating myself for several consecutive quarters now, I'm very happy to say that the first half year of 2023 marked another record H1 for Brockhaus Technologies. with profitable top-line growth across all business segments. We generated revenue of €84 million in H1 2023, which represents organic growth of 29% compared to H1 of last year. Adjusted pro forma EBITDA grew by 28% to €29.6 million, corresponding to a high margin of 35%. Adjusted performer EBIT also increased by 26% to €27.5 million, corresponding to a margin of 33%. Margins on group level are thus broadly in line with the previous year's level. Before adjustments, EBIT amounted to €27.9 million and EBIT to €18.5 million. The unadjusted EBIT is especially influenced by purchase price allocations amortization on the back of this strong development so far we confirm our group forecast 2023 with revenue between 165 and 175 million euro and an adjusted ebitda margin of 35 the operating development in h1 as well as the growth forecast for the full year as well as medium term outlook for 2025 clearly underline the resilience of our business model and focus on technologies and innovation leader. Leaders in a market environment with so many geopolitical and macroeconomic uncertainties as is currently the case. Our net leverage ratio within the group was kept constant at 0.7 times adjusted LDM EBITDA. and this despite the fact that we spent €8.5 million on the acquisition of two sales agents of bike leasing and that we are looking at a seasonally high refinancing backlog that increased by roughly €14 million in Q2 and should come down again throughout the year. With those two factors in mind, the development on the line, the high cash conversion of our businesses and equips us with significant non-dilutive financing capacity for future acquisition, a potential share repurchase, et cetera, et cetera. Ladies and gentlemen, with this brief summary turning over to the next page and handing over to Harald, who heads our finance department. Harald?

Yes, thank you, Marco, and welcome, everyone. Let us jump right into the quarterly revenue analysis as usual on page four, please. Starting at the top with bike leasing and an increase in top line by more than 50% in Q1, followed by a plus 22% in the second quarter. These growth numbers deviate somewhat due to two factors. First, we had a base effect in last year in Q1 2022. Back then, accounting for a green bond securitization had a negative, however, cash neutral P&L effect. This did not reoccur this year's first quarter, and therefore, reported revenue increased stronger than a bike leasing business volume. In the second quarter, it was the other way around. Last year the refinancing mix and operating processes were mostly in line with a desired state of things. This year, however, a smaller percentage of newly generated lease receivables were sold or forfeited conventionally on a non-recourse basis. This is the refinancing option that leads to an immediate income recognition. The reason why this was not possible to keep the forfeiting ratio that high is the continued very strong growth of new business. As a result, refinancing options had to be used that do not allow for immediate income recognition. This leads to a predictable generation of income over the contract term of 36 month respectively. While this will have a positive impact on the future earnings situation, income recorded at the beginning of the respective leases is lower now. Proceeding to IHSE on the bottom chart, as you can see, growth further accelerated even in the last month after a plus of 14% in the beginning of the year a strong Q2 fallout at plus 23% year-over-year. Jumping to the next page, please, with the regional sales split. Here, first, bike leasing. As far as you know, the company has been focusing on Germany only with first but very promising steps to expansion into Austria. And therefore, all revenue relates to the EMEA region. At IGSE, the material driver was a very strong performance in the US this year, where revenue grew by more than 80%. Also, EMEA showed a solid increase of plus 10% year over year. In the APAC region, revenue was still down by 46% to 1.5 million euros. This is due to the general trends of the coupling of the Chinese economy. Other factors also include below average growth in economic output, coupled with the crises in the construction industry, and in the general reduction in investments of the local Chinese district governments. Turning to the table of this segment here. Thank you. In the first two columns, we see that bike leasing's high margins remained mostly stable. The gross profit margin declined slightly by 0.6 percentage points to 62.4%, driven by two offsetting factors. First, the increased proceeds from the disposal of lease assets had a reducing effect. At the end of a lease contract, the bikes are sold to the employee, the employer, or a dealer, retailer. And the steep increase in disposal proceeds now in H1 2023 results from the very, very strong growth in units three years ago, so before 36 months. Although this revenue component leads to a positive contribution to earnings overall, its gross profit margin is significantly lower than the one of the other revenue components of bike leasing. Excluding for this contribution of disposal business, the gross profit margin remained at a consistently very high level of 80.5% versus 80.4% a year ago. In the other direction, I said to offsetting factors, bike leasing acquired two of their external sales agencies in the past quarter. This results in savings of provision payments to those agencies, which positively impacts growth profit. The slightly lower value for the adjusted EBITDA margin and the adjusted EBIT margin are primarily driven by the gross profit effect, but also by increased interest rates, which had a negative effect on income from leasing. Since the beginning of this year, bike leasing has introduced a variable leasing factor. and is currently undergoing a process of converting existing customers to this new system. A brief reminder, the leasing factor refers to the monthly leasing rate of this amount as a percentage of the acquisition cost of the leasing asset. So turning that up increases profit of the company. This conversion to a variable leasing factor will make the income per brokered bike materially independent of the respective interest rate levels. However, this conversion has not yet been completed for our customers, which means that the currently high interest rates still have an impact on our results. Proceeding to the next two columns to the right, at IHSE, the gross profit margin was essentially on last year's level, adjusted EBITDA increased by 18% to 3.5 million euros. And EBITDA margin was nearly the same as last year, same applies to EBIT margin. This margin level resulted primarily from increased costs for trade shows and travel activities, as well as IT costs. Particularly in the first quarter, several trade shows took place, which are an essential marketing channel for HSE. and personal expenses were also higher than last year this is mainly caused by higher commission payments in the us resulting from the very positive business development over there as well as the general adjustment of salaries due to the increased cost of living please bear in mind that this development is completely in line with ihse internal budget And we expect margin to level out over the remaining fiscal year on a clearly higher level. This expectation is also backed by the very positive order situation currently. In the central functions, two columns to the right, expenses increased in comparison with H1 2022. And the cost for this was a higher consulting fees relating to the review of potential corporate transactions, as well as increased marketing expenses with the goal of raising the brand awareness and popularity of broadcast technologies. In conclusion and summing up on the consolidated group level, revenue was 84 million euros showing a substantial increase of 29%. Gross profit margin was at 65% and adjusted EBITDA margin was 35%. Bring a group to an adjusted EBITDA of almost 30 million euros in half a year. The group's adjusted EBIT of 27.5 million euros corresponds to a margin of close to 33%. When you compare the last year figures here to numbers which you might have in your own financial model or own documents, please bear in mind that following the sale of Pallas end of 2022, our P&L items need to be reclassified retrospectively. Which means, according to IFRS 5, all revenue and cost contributions of Pallas must be excluded from the respective line items of the P&L and are now shown in the total at the very bottom of the P&L, which is called income from discontinued operations. Therefore, you have a nice like-for-like presentation of the results now, but a difference to our historical reports. Last but not least, our cash balance as per end of June, amounted to 59 million euros. Which brings us to the next topic, which is the financial position. Here we have a summary of financial leverage and structure of it. The net debt from loans, very left of the chart, amounted to 87 million euros. Substracting cash leaves you with a net debt from loans of 29 million. adding 14 million from other financial liabilities and subtracting 6 million of net financial assets from leases brings us to 37 million euros in total net debt if you compare that to our current ltm ebda this corresponds to a leverage of 0.7 times as marco mentioned before and Since our target corridor goes up to 2.5 times EBITDA, this remains a very conservative level of leverage in our view. When looking at cash flow in the first half of this year, there is a specialty that we would like to give you some more information about. You can see that on the next slide. And this is the cash flow effect of the refinancing backlog of bike leasing. So when a new bike is brokered through our digital platform, in step one, bike leasing pays the bike's purchase price to the retailer. This purchase price is then refinanced by bike leasing either through an external leasing company or through other financing partners such as banks. Naturally, there is some delay between the payment to the retailer and the payment received by the respective external financing partner. So a time lag between cash out and cash in results in liquidity being tied up in the form of a so-called refinancing backlog. An increase in this refinancing backlog has a negative effect on operating cash flow, while a reduction of backlog has a positive effect on operating cash flow. The absolute level in euros of the refinancing backlog is mainly driven by three factors. One, the number of new bikes brokered. Two, the price per bike. And three, the processing time of the refinancing. The number of bikes are already growing rapidly for bike leasing, driven by a huge rise in interest in company bicycles as a sustainable, cost-efficient, and healthy mobility solution. The average price per bike is also trending upwards, which has a further increasing effect on the volume in euros. In addition, the warm months of the year bring an increase in volume due to the significant seasonality of the business. So you have a cold Q1 and Q4 with not so many bikes and a warm Q2 and Q3 with a lot of new bikes. These two factors, so long-term growth in conjunction with peak season, generally result in new record volumes at bike leasing like every summer. These high volumes, even when refinancing processes go according to plan, lead to an increasing refinancing backlog in spring and summer, which then reduces back down to very low levels in fall and winter. At the end of the first quarter, the backlog was already at some 14 million euros and therefore 11 million above the figure start of January, so start of fiscal year. In the months of May and June this year, the very high volumes led to an increase in processing time for the refinancing at multiple external finance partners of bike leasing and a substantial increase too. Combined with the high number of bikes per day in summer, these delays resulted in an extraordinarily high refinancing backlog of 28 million euros end of June. This backlog had a significantly negative impact on the operating cash flow in H1. The graphic here on page eight shows the development of the bike leasing refinancing backlog, green bars on top of the page, and its effect on the group's operating cash flow in a quarterly disaggregation. The effect on the cash flow you can see in the blue indicated bar chart on the bottom of the page. What we see is that when you eliminate the change of the refinancing backlog, the operating cash flow would have been more than 20 million euros in the first half of 2023 compared to a reported figure of minus 4 million. Let me make clear that this is a temporary effect. During the last weeks, already, the refinancing backlog came down by more than half. So for first week of August, we are talking about some 13.5 million euros, which is essentially the level of March. So this was caused mainly by the easing of processing times of external financing partners. With a seasonally decreasing number of bikes per day in winter, we expect further cash flow to be realized from this. That was a lot of information and material. If you would like to revisit our explanation on refinancing backlog and cash flow, you can find a detailed discussion including this graphic in our half year financial report on page three and four. This would conclude the financial update. I'm happy to answer your questions later on and now hand over to Paul who is in charge of our acquisitions team.