SoftwareOne Holding AG (SWON) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the SoftwareONE H1 Results Webcast. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Dieter Schlosser, CEO of SoftwareONE. Thank you. Please go ahead.

Thanks, moderator, and good morning and a warm welcome to our H1 results presentation. I'm Dieter Schlosser. I'm the CEO of SoftwareONE. I'm joined over here with Alex Alexandrov, our COO; as well as Hans Grüter, our CFO. I will take you, to start, through some key takeaways and the highlights of the first half of this year. That will be followed by a detailed business update by Alex, and then concluded by the financial performance of Hans. I will then turn on to the outlook for the full year, and we will then go to a Q&A session as always. Let me also refer to the disclaimer on Slide 2 regarding the forward-looking statement and non-IFRS measures. As usual, please read them carefully. So starting with a few key takeaways for this presentation. You remember, in the end of 2020, we already started to make some strategic investment. We continued this during the first half of the year. We returned to a very solid level of growth, very proud to share this with you. On a strategy side, our strategy remains the same. We are focusing on the overall growth with our 65,000 customer, digitizing Software & Cloud, attaching the portfolio of our Solution & Services, everything underpinned via the PyraCloud platform, which is unique in the market. Allow me to go into the business lines. On Software & Cloud, we still showed some residual COVID-19-related purchasing weakness. And let me elaborate a bit more of that. We have seen this till April from May and June onwards, we have seen an improvement and the recovery throughout the geographies. As well, we have a continued shift to pay-as-you-go, and that's something -- for those who are new to us, maybe I go a bit more into detail. Pay-as-you-go is a consequence of moving into the cloud. You move from subscription to consumption. But it's also a conscious decision, a conscious strategy from SoftwareONE to establish a larger lifetime value with our customers. Pay-as-you-go is more scalable, is recurring revenue and allows us to be closer to our customers. On the regional side, LatAm, as you know, was quite heavily impacted by COVID-19, in particular, 2, 3 countries, Brazil, Mexico as well as Colombia, to a certain extent, that's rather the macroeconomic environment. On Solutions & Services, we delivered a very strong performance. Our portfolio is resonating, whether it's pre-COVID, whether it's during COVID or whether it's post COVID. Absolute demand is increasing with customers. Our pipeline is rock solid. Our backlog has never been on that level. So there, all the artifacts, all the signs are there that we continue on the same level of growth for the second half of the year. Our investments in H1, we -- where we capture the market opportunities in cloud-based services will lead to a growing EBITDA margin profile for the full year. We are reiterating the full year guidance with confidence. We strongly believe that our investments are yielding the results on a full year basis, and we remain focused on executing our strategy. Let me go now to a few key highlights. We ended up the H1 with a growth of 12.3%. That's constant currencies. That's also inclusive of InterGrupo. In numbers, it's CHF 414 million. On the EBITDA side, we are at CHF 109 million. The EBITDA margin you see over here, we are at 26.3%, fastest is the pathway to the full year guidance. We have seen Solution & Services outperforming with 53.4%. And again, that has become now a quite sizable portion of our overall GP profile. We are talking about 35% of our overall profile. Going to the acquisitions. You have seen the announcements. In essence, you can put them into 2 buckets. We have done 4 SAP acquisitions in the first half year also associated with our strategic agreements with Microsoft. And we have done 2 acquisitions, one on Google and one on AWS. But let me also draw your attention to the 5.4 million managed cloud users, which we are, in the meanwhile, supporting. Those who have been with us since the beginning of our IPO, they absolutely know the story how we have started. We have committed and promised to you that this is a scalable solution which will grow on an incredible level. We -- at that time, we said we are doubling up every 18 to 24 months. That has still -- that has absolutely materialized. It's still for us the tender for the future. It is a sticky lifetime value. It's a close customer relationship. It's recurring revenue. It is absolutely scalable. The contribution margin absolutely outweighs the initial investment, which we need to do if you would -- if we grow further. Before I come to the Executive Board appointments, you have seen the announcement. Hans Grüter, our CFO, is retiring by year's end from operational activities. He has been with us for the last 7 years. He was instrumental to the IPO. He has built a best practice finance organization. He overall contributed very well to the success of SoftwareONE. I don't want to wish him all the best now because he's still here for us for the next 3 months, but I want to thank him for his contribution, for his guidance and for his mentorship, and we will continue to work together till year's end. It's also very notable that SoftwareONE is attracting high-caliber talent in the Executive Board, but you will see this also when we go a bit more into detail in the Capital Market Days across the organization. You will also personally get to know many of our global talent. But very happy to announce that Rodolfo Savitzky is joining us from the 1st of January, a very seasoned executive leader, very seasoned CFO from a public listed organization, and he will join us 1st of January 2022. Also we have announced Bernd Schlotter. Bernd Schlotter has been appointed as the President of Services. Bernd has joined us from BCG where he has led the Silicon Valley office of BCG. He has a fantastic amazing background. He is coming from the top consulting companies, consulting not only service providers on where they need to go but also the customers, where they need to pivot on the technology as well as on digital transformation and has been himself on the service provider side as well. So very authentic, already onboarded, already making an impact, which is very pleasing to see. Now let me go to the next slide and talk you through our gross profit growth and to walk along that. You see on the left side, the blue is the Solution & Services. Let me do this at a later stage. Let me focus on the red side, which is our Software & Cloud business line. Over here, you see a slight negative growth of 2.1%. In essence, there are 3 reasons for that. Number one, as I mentioned earlier, there was still some residual weakness in Software & Cloud for the first 4 months of this year. As I said, we have seen that turning around in May and June, and we are seeing it continuing to recover and grow. The second is the dilution of our gross profit from Software & Cloud into Services, which is through pay-as-you-go. Again, pay-as-you-go is not only a consequence of cloud, but it's also our conscious strategy because the scalability and the lifetime value of our customer. The third point is certain geographies have not performed as we wanted them to perform. I mentioned already LatAm, and that's macroeconomic to COVID-19. I will show you later a bit more on the rest of the geographies how we have performed. Now moving to the right side and giving you more detail on the Solution & Services. You remember, we spent in 2019 the time to integrate this Comparex integrator, our service portfolio and the service catalog. We clearly committed and told you that this will lead to an acceleration once we are through the integration. We delivered this in 2020. We accelerated to 23.9%. Now you see another acceleration up to 53.4%. And yes, you see there is also 36%, which is organic. And for us, it's more or less the same, whether it's organic or nonorganic, because every integration means also attention, means also focus and means also opportunity costs. So the achievement is the achievement, and we are very confident that this level of growth continues for the remainder of the year driven by pipeline, driven by backlog. But you also see at the bottom, you see the 59% and which is again a number which is growing. That's our ratio on managed service. It means we have recurring contracts, and that's delivery backlog. That's not sales backlog. That is delivery backlog, which is part of your bookings for the future. Going into the geographies. Let me start with North America. You see 11.3% growth year-on-year. I'm very pleased over there, particularly from Q2 onwards. We have seen really an acceleration, which is also indicative of what we see in the rest of the market and also from competitors. On EMEA, we have seen a solid growth of 8.2%. You see below that has really grown very well. We have -- in the rest of EMEA, we have 2, 3 countries which have not performed to our satisfaction level, and we have addressed this for the second half of the year. APAC is growing very nicely with 25.1%. And LatAm, on the left bottom, you see is also growing. It's growing 48.7%, but let's be clear on this. That's -- the biggest chunk is the integration of InterGrupo. If we take InterGrupo out, we have a negative growth of 5.4%, which is what I mentioned earlier, macroeconomic through COVID-19, particular Brazil, particular Mexico and to a certain extent, InterGrupo. So before I hand over to Alex, let me reiterate our strategy. And for those who have been with us for quite some time, you always see 5 pillars how we execute our strategy. The first pillar is continue to grow and digitize Software & Cloud. And I want to do a bit of a deep dive on that for you. What we see in the market, what we see from our customers, what we see from the publishers and the ISVs and the technology trends, they, in the future in this classical reselling space, will completely evolve. There will be only 2 motions going forward. The first motion is the customer wants to do self-service. And whether that self-service is enabled through a platform, whether it's enabled through a marketplace, whether it's enabled through customization, they want to do self-service. The trend is absolutely going into marketplaces and enabling the customer through that with a digital experience. The second motion is the customer wants a trusted adviser to manage their software and cloud spend. They want to manage it completely through a trusted adviser, and that's where we see a great potential with our offering. We call this digital supply chain where we have seen tremendous growth over the past 6 months. But also on the marketplace, we are well positioned, and it's very important that you see the penetration and the adoption of our PyraCloud because marketplace is one component of PyraCloud. We are able to position the marketplace to our customers. They can use our marketplace to consume software and cloud. They can use our marketplace to aggregate other marketplaces, which are out there, whether it's in Amazon, AWS or whether it's in Azure or Google. And we can also use the same marketplace to do business to business. So really an omni-marketplace, which is changing the landscape quite dramatically. Why do I deep dive over here? Why do I elaborate on this so much? It's very important for the community to see that the classical reselling is changing. It is not anymore in the future about optimizing every single deal and take the highest GP out of a single deal. It's about digital experience for the customer and the customer wants to consume software and cloud through a self-service platform. The second point is cross- and up-selling our Solution & Services. That's always a very safe term. The ones looking on metrics are looking at upwards and sidewards mobility. We see it very simple. Every single customer which we have, we want to attach Solution & Services, and every Solution & Service customers, we want to attach Software & Cloud because they both go together. They are not exclusive to each other. They are synergized. They belong to each other. And you see now from a growth perspective, 66% of LTM is already from customers purchasing both software and services. You also see and we have indicated this now quite clearly on over 70% year-on-year gross profit growth in our xSimple bundles. Remember, xSimple bundles is equally fast for pay-as-you-go. And that's a tremendous achievement as continuing this way, we don't see any slowdown over here. And as I mentioned earlier, highly scalable, high recurring revenue and the contribution margin on this is just incredible to further scale out. The third area is to look at the customers' digital journey and make sure that our portfolio is addressing that customer's digital journey, that customer's commercial or technology journey. And I want to highlight that we -- over here, we want to disconnect the growth of our business with headcount growth. We are focusing on the front end to the customer on absolutely IP-enabled services. We are focusing to do it with a fresh approach where we don't need a bench, where we don't need to grow similarly to headcount when we have a business growth. You will see this also later on the back office, and Alex will go into more detail. Also, we see the investment in our strategic growth areas evolving very well, very well. To recall and you see more later in the slides, these are 5 strategic growth areas such as like SAP in the cloud, such as like application services, application modernization or managed FinOps, which is the cloud dynamics in the future. To be crystal clear, in SoftwareONE, we have a golden rule. If we establish -- if you establish a practice, that practice has to have a potential of at least CHF 100 million GP. Our 5 strategic growth areas are on this journey to cross this CHF 100 million, and we'll do so in the next 2 years. On the fourth pillar, we see the scale on the local operating model. That's important because we need to further evolve on an ongoing basis on our margin profile. Again, there is an automation and there is a digital enterprise avenue for us where we disconnect the growth from headcount investments. But also, it's important that we are there where the customers. We have to deliver local, regional and global. And we have to make sure that whatever we can standardize, whatever we can automate is coming through the system. Whatever we can standardize, we can deliver globally. Whatever needs to be face-to-face, whatever needs to be customized towards the customer, that reduced scope needs to be local and regional. Last pillar is our M&A. And over here, we will continue to be very selectively adding to our organic growth. And it's all about jump starting, it's all about capabilities. You already have seen, we have announced 6 acquisitions so far. We will continue to focus on SAP in the cloud, and we will continue to focus also to add capabilities on AWS and our Google practice. With that, I'm very happy to hand over to our COO, Alex Alexandrov. Thank you very much.

Thank you, Dieter. And also, a nice warm welcome from my side. It's nice to be back in person as we conduct this call with you. I'd like to spend a few minutes with the business update, and I'll start with the backdrop in terms of our customer base in the markets where we operate. As we've talked about from the IPO, all of our customers are using technology to enable their business. They see it -- technology as a way to differentiate. They see technology as a way to grow, to transform their own business. This technology spend continues to grow within our customers, and it grows as both CapEx and OpEx. So the additional complexity as well as the additional OpEx puts quite a bit of spotlight on technology. And that's the role, that's the place where SoftwareONE sits in. We're helping our customers all along those technology needs, whether it's spend, whether it's optimization, whether it's migration and management in the cloud. On the right side, you see our markets, the markets where we operate. We've talked about, on the top right, the software and cloud market for us is really the enterprise software market. You see here that it's greater than USD 500 billion market, now growing at over 10% as it recovers from COVID. On the bottom right, as you heard from Dieter, all of our services and solutions are built for cloud only. And as we continue to build out this portfolio, we'll spend some more time with you in the Capital Markets Day to really show you our specific addressable markets. But overall, what we can say is the backdrop of the public cloud, public cloud infrastructure as a service, is a good proxy for our markets. And you can see how well it's growing at 30% CAGR over the next several years, and the market is essentially 4x the size over the next 5 years. Our portfolio is -- towards the customers is organized in a way to address the customers' pain points, to deliver outcomes to our customers. And that's why we speak about commercial transformation. We speak about technology transformation and, ultimately, digital transformation. What do we mean by this? On the commercial transformation, yes, we are helping customers buy at the lowest cost. We're helping them buy in the right jurisdiction with the right terms and conditions. But more and more, we are helping our customers get their arms around their overall spend. We're introducing visibility. We're introducing transparency and, ultimately, management of their overall spend. That's what we're able to accomplish for our customers as part of their commercial transformation. On technology transformation, it's all about helping customers get value from that spend. They're spending on software. They're spending on cloud, and often they need help to get there. They need help implementing or migrating. Then once they're in the cloud, they need help managing. They need help optimizing. And that's where our technology transformation practice plays a big role. As you heard from Dieter, as we continue to add to this portfolio, yes, the portfolio continues to grow because we are trying to address more and more of our customers' needs, but we try to do it in very much in an IP-enabled way so that it's not a plain vanilla service. It is always a SoftwareONE unique service because that allows us to add more value to the customer, allows us to remain sticky with the customer. And finally, when we put commercial and technology transformation together and we add business or vertical expertise, we are able to take our customers all the way to digital transformation. We help them innovate their business model, improve their own customer experience and improve the experience or optimize their own internal process or employee experience. Our lines of business are increasingly more and more integrated because as I just mentioned, we are after delivering these outcomes to our customers around commercial technology and digital transformation. For example, we might take a third-party software or a subscription, wrap a SoftwareONE service around it, add analytics and digital interaction with our platform and come up with a SoftwareONE solution. That would cross and have gross profit that would drop into both Software & Cloud and Solutions & Services. At the same time, we might have another example, we might have application modernization. We might move a customer's workload into the cloud, and that would be a service. At the same time, as that application now operates in the cloud environment, we would drive cloud consumption, and that would be a positive for our Software & Cloud business. I wanted to illustrate these 2 examples just so to better show how the 2 lines of business are working closely together and why we focus so much around our overall growth rates at the customer level. To take you down to the specifics of the line of business performance. On Software & Cloud, you see it as 65% of our gross profit today. As Dieter mentioned, we are at negative 2% for the first half. Some of the contributors, I'll dive into now. On the Microsoft side, what we see is our billings growth is very similar to what we see in the market, what we see with Microsoft. At the same time, we continue to see this mix effect that we talked about on our last call, which is enterprise, which is about 2/3 of our billings, continues to grow very strong, but it does not contribute -- it's at a lower gross profit contribution to SoftwareONE. At the same time, SME had been weak through COVID. It is now -- we're now seeing a nice recovery in SME, as Dieter mentioned, towards the first -- towards the end of the first half, and we expect this to really recover in the second half. The impact of SME recovery, SME growth shows up in 2 ways. It shows up in Software & Cloud, and it also really drives our pay-as-you-go dynamic, as Dieter mentioned. We -- the second big impact, the big force that we see in our Software & Cloud business is pay-as-you-go. And as you're hearing from Dieter, this is our xSimple bundles. What we do here is we offer a -- customer is signing up to a subscription, and we wrap a service around the subscription, and we wrap PyraCloud around it. We create a bundle. That creates much higher-margin business, a very scalable and recurring business. What it does is it produces less revenue upfront because the customer is not signing up to an annual or a 3-year contract, but it does create a very nice lifetime value of the customer, and it creates a lot of gross profit that is recognized as a service on the Solutions & Services side. And then finally, by region, we saw weakness in LatAm, and this undoubtedly impacted our results. What we expect going forward is, as I mentioned, continued recovery in SME that's driving both our Software & Cloud and our Solutions & Services business and continued strong growth in pay-as-you-go. What you see in the -- some of the KPIs that we're now disclosing is that the pay-as-you-go business was previously growing greater than 50%, and we're now seeing growth greater than 70% in this segment. On the multi-vendor side, we would say very much closely resembles what we're seeing with Microsoft specifically, which is some weakness -- purchasing weakness through COVID and a nice recovery in May and June as we wrapped up the first half. Just a few highlights on Solutions & Services, and I'll go into more detail. On Solutions & Services, we continue with our strategy, as Dieter mentioned, to take our customer and do more with them. And we measure our success here with our cross-sell metric, which is how much of our gross profit is with customers that do both with us, Software & Cloud and Solutions & Services. The KPI here, as we've talked about consistently, has gone from 60% in prior period to now 66% of our gross profit is customers that are doing both with us. We believe this is very attractive because it creates, again, a stickier, more recurring customer relationship. We are much closer and interacting constantly with the customer. I will go through the additional detail in the following slides in terms of the contribution of the commercial and technology segments as well as the growth rates there. We're very excited about the results because in the commercial transformation area, we are seeing return to double-digit growth rates. On the technology transformation, we're seeing 39% growth. And finally, I'll spend a few more minutes on the following slides on our investment areas. As we talk about our integrated business, as we talk about how -- what does the future business model look like and why Dieter spent so much time in the strategy section on this, we see PyraCloud playing a critical role. This is our way to deliver an integrated business model to our customers. It's a way for us to embed our own IP, intelligence and automation. And that's why we're so excited. That's why we continue to invest so much in our platform. Our platform has 3 aspects to it. The first aspect is the marketplace. This is a place where customers can come to buy, select the software and even select from our services catalog, self-provision, some of those solutions. In the middle, what you see is us building a way to interact with our customers in a digital way. We will not be able to replace and nor do we want to replace a lot of our human touch points. But more and more, as you're hearing from Dieter, customers want that digital interaction. They want that digital way of doing business, and that's what we're creating with SoftwareONE Digital. Finally, customers are using multiple clouds. And this is the third aspect of our PyraCloud, of our product portfolio, which is an intelligent management platform for multiple cloud environments. What we want to highlight here is we -- again, this is the connective tissue, the glue between our Software & Cloud and Services & Solutions business. We will continue to invest more and more here because this creates a lot of IP and value add for our customers. And the statistics show that customers appreciate this and customers are willing to adopt it. More than 60% of our customers are now activated on the platform, and we're seeing significant increases in usage. As I mentioned in the previous slide, our portfolio, our services portfolio is organized around customer outcomes. And this is what we mean around commercial transformation and technology transformation. Let me now spend a few minutes. On the commercial transformation, we are helping customers with an advisory engagement upfront to understand what are they buying, is it what they need to buy. And then as an outcome of that, we help them buy at the lowest cost. This area today contributes a little bit more than 25% to our services gross profit, and it's now growing nicely at more than 15% year-on-year. On the right, you see our technology transformation areas. Here, we are offering our customers scalable solutions to move to the cloud, then we offer them an ability to manage and optimize their environment in the cloud. Many of these are very much in a managed service format because, again, we always try to balance a professional service that leads to a managed service. This, for us, is a key ingredient to success because it allows us to build a very scalable, profitable services business. The technology transformation area in H1 contributed more than 50% to our services gross profit, and it's growing very well at 39% year-on-year. The strategic growth area I will dive into next, this today is a little bit less than 20% of our gross profit contribution and is obviously growing very fast. So let me now spend a few minutes on that. Our strategic growth areas is what we started to break out for you at the beginning of this year. It's something that where we started investing heavily in 2020. We selected these areas based on market opportunity, total addressable market opportunity and an addressable pain point with a customer. It's very important for us to say, does the customer have a pain point? Are we able to address it? When we combine those 2, the addressable market and the customer pain point, that for us shows it's a good area for us to invest in. We can add value and help solve the customers' problems. The strategic growth areas are made up of application services; SAP to the cloud; hyperscaler factory; industry verticals where we started with engineering and construction; and finally, managed FinOps. What I want to highlight here is that we are investing in this area. In the first half, we invested approximately CHF 26 million in OpEx, both a combination of internal organic OpEx as well as through our acquisitions. Already, these strategic growth investment areas are yielding approximately 26% of gross profit. We're very happy with where they are today. At the same time, it's also very clear that these areas are still very much at the beginning of their growth journey and very much at the beginning of their ability to scale and really contribute to our EBITDA. The momentum we see here is really exciting. We're seeing win rates increasing 2 to 3x. We're seeing pipeline at 3x, and we hope to go into much more detail in these areas with you in our Capital Markets Day. I'll now turn it over to Hans. Obviously, a very special and exciting day for Hans and better suite for us as Hans has been an amazing partner for our entire team. Go ahead, Hans.

Thank you, Alex, and also from my side, welcome to this conference call. I'm pleased to go through the financials in more detail. I'd like to start with the profit and loss statement. The IFRS reported figures H1 2020 and H1 2021 represent the figures which you see in the half year report. More meaningful to assess our performance are the adjusted figures, which you see on the right side. The adjustments made are all in line with our policy, represented in the annual report as alternative performance measure. We have achieved a total gross profit of CHF 414.4 million, corresponding to a growth at constant currency of 12.3%. Even though the 2 lines of businesses really belong together, as Alex just alluded to you, we present the line of businesses separately. The gross profit from Software & Cloud declined by 2.1% and achieved CHF 267.6 million. The gross profit from Solution & Services is CHF 146.7 million and represents an extraordinary growth of 53.4%. On the OpEx side, the operational expenses amounted to CHF 305.3 million, which represents 22.5% growth, increased or higher than the gross profit, and this marks the investments we've made in the growth areas. The resulting EBITDA is CHF 109.1 million, down 9% from the CHF 120 million on prior year period. Depreciation, amortization, financial results and tax expenses are in sum very similar to the period of last year. But to be noted here, we have a small increase in depreciation to a smaller, higher CapEx. And we had special effect -- positive effect in last year due to customer relation, revaluation and a tax benefit. This onetime positive effects did not recur in 2021. With this bridge on the next slide from reported profit to the -- from the period to the adjusted profit, we want to provide you the transparency of all the adjustments made. Starting with the IFRS profit of the period of CHF 38.3 million, we added an expense of the share-based compensation of CHF 7.8 million. This contains 2 topics or 2 metrics. One is the management equity plan, which was launched prior to IPO and was fully funded by the major shareholders, so there is no impact for the SoftwareONE, for the company, neither on cash, neither on equity. And the other one is the free grant share. The CHF 7.8 million is already reduced to last year of CHF 12.4 million, and it will further reduce going forward and will end in 2022. We have adjusted expenses for the integration of acquired companies of CHF 3.1 million, and we have adjusted M&A and earn-out expenses of CHF 5.7 million. This is mainly the earn-out expenses will make up that sum. In addition, we adjusted the depreciation of the shareholdings in the Norwegian-listed company, Crayon, of CHF 1.2 million. Last year, there was an appreciation of CHF 13.3 million. And finally, we make the tax adjustments of all these adjustments made and reached an adjusted profit of the period of CHF 54.3 million. Continuing with the profitability on the next slide. Our profitability here presented as EBITDA is impacted by the investments made in our strategic growth areas. The EBITDA H1 2020 of CHF 120 million decreased by 9% to CHF 109.1 million. Main drivers have been a gross profit decline in Software & Cloud of CHF 9.6 million, a gross profit increase in Solutions & Services of CHF 27.4 million and already a nice gross profit increase of CHF 25.8 million of our strategic growth areas. These strategic growth areas on the other side had an OpEx of already more on the same level and already reached a breakeven point. It's very remarkable at the beginning to be in that good shape. The investments -- further investments we have made in delivery capabilities and sales and marketing all for future growth of our business. This results to an EBITDA of CHF 109.1 million. In summary, the investments made are not yet profitable or fully profitable. However, a very good foundation is made for future growth and to increase our profitability. Continuing with the cash flow. We have achieved underlying improvement in the net operational cash flow of minus 100 -- minus CHF 32.4 million. However, on a reported basis, the cash flow decreased from CHF 206 million positive in H1 2020 to this CHF 32.4 million minus in H1 2021. As disclosed last year, the cash flow was inflated by about CHF 250 million last year to the COVID-related vendor deferral payments. Corrected by this onetime effect in the first half year in 2020, the cash flow from operational activities would have been about minus CHF 40 million. And there, you see the positive -- the improvement on the line we have made this year already. Small increases in the CapEx, you see on the left side, to CHF 14.3 million. The main contribution to the CapEx are investments in our PyraCloud and also investments internally generated in our processes and improvements. This demonstrate the small numbers that we are in an asset-light business model and able to generate positive cash flows. Continuing with our balance sheet. We do have a very strong balance sheet. And let me take the most or biggest part of the balance sheet to address the net working capital. The net working capital is in a negative territory despite the seasonal effects we have and despite the business growth. Also here, you see the improvements on the line made to the prior year. The prior year reported net working capital was CHF 173.4 million negative, but adjusted to this onetime effect represented to last year of CHF 250 million, we have an improvement made this year very significantly. And I can tell you, this improvement was not only at the rebalance sheet date. It was achieved during the H1 2020 period every month. Going forward, I think this trend can continue, but we do not expect that we can achieve this really record low level we have achieved at the end of last year fully but should be close coming to that. The equity ratio with 24.4% remains on the same level as in December last year, so it's on a good level and is also demonstrating the unlevered balance sheet we do have today. The net debt at the end of the period is minus about CHF 400 million or you could also say the net cash positive is CHF 400 million. Together with unused available credit line with this unlevered solid balance sheet, we are very well positioned for future growth and very well positioned for future acquisitions. And finally, a personal note. As announced, I will step down as CFO and retire from operational activities at the end of this period -- at the end of this year, sorry. The 7 years at SoftwareONE has been the best experience in my career. I enjoyed and will enjoy every day of that extraordinary and ambitious journey I was able to participate and contribute. I'm very glad that we found Rodolfo Savitzky, an excellent successor, and that we are able to plan a smooth transition. And with this, I give it back to you, Dieter. Thank you.

Thanks, Hans, and also thanks, Alex. Let me now, before we go into the Q&A, reiterate the outlook for the remainder of the year as well as elaborate a bit on our Capital Market Day in October. So coming to the full year '21 guidance, just to reiterate, on the gross profit side, our guidance was in this above 10% growth in constant currency. That's excluding InterGrupo, which we expected to contribute almost around 4%. Our key assumptions to the guidance, we see a further acceleration in our gross profit growth in the second half of the year. That's led by a recovery in Software & Cloud, we already shared this with you, with a return to a positive growth and the continued strong momentum in Solution & Services supported by backlog. Midterm guidance is mid-teens growth in constant currencies. On the adjusted EBITDA margin, approximately 30%. And over here, our key assumptions are the cost base at approximately the same level in H2 2021 compared to H1 2021 driven by our front-loaded investments, which we have done in the first half of the year. The midterm guidance on EBITDA is the EBITDA growth will be in excess of gross profit growth. On the dividend policy, our guidance is 30% to 50% adjusted profit for the year. And as you have seen before and the historic trend, we have a progressive dividend policy. The midterm guidance remains unchanged between 30% and 50% adjusted profit for the year. Now coming to our event in October. On the 20th October, hopefully, we see many of you at our Capital Markets Day. Over here, you will see not only us as the Executive Board, but we also bring quite a number of global talents, demonstrating to you our strategy on Software & Cloud, our digitization strategy on Software & Cloud too as well as our Solutions & Services, how everything flows together and how we make sure that this becomes an IP-driven and not an OpEx- or headcount-driven growth plan. Looking very much forward to that. And I hope you enjoyed the presentation. I hope you have seen what we are doing in SoftwareONE. It's always about winning the business of today, why we build the business of tomorrow. And now I'm handing over to the Q&A sessions. And hopefully, we can spend the next 30, 40 minutes on questions and answers. Thank you very much.

[Operator Instructions] And your first question comes from Stacy Pollard from JPMorgan.

A few questions from me. First of all, can you talk about the pipeline for Software & Cloud and what kind of year-on-year growth you'd expect for the second half? And could that -- could you make it to a positive growth for the full year? And then as you look into 2022, do you think there's a bit of a rebalancing? So for example, the Software & Cloud get back up to double digits and then kind of Solutions & Services, obviously, quite exceptional growth in the first half of this year. Where do you see that sort of balancing out on a normalized basis? I'll ask the second question after.

All right. Thanks, Stacy. Great questions. On the first one, in terms of our pipeline, we have already seen the pipeline growing from May onwards. We see continuous rebound in that line of business also in the current months post H1, and we have a positive momentum. If you take our geographies and that slide which I showed, Stacy, on LatAm, and if you would normalize LatAm and if you would take those 2, 3 countries from Europe in a normal performance, we would be already on a positive level in Software & Cloud. So that's what we have addressed. Of course, we cannot address the macroeconomic side of it, but as you know, Brazil and Mexico and Colombia is also improving heavily on that side. On the second part is whether we see a normalization in 2022. We see this from different angles. The first one is, of course, we see that positive momentum across geographies, but we also see the SME recovery across the board. And second -- the second part which I want to mention over here, we see a very positive dynamics also in the Microsoft space. And for that, we are very confident on 2022 as well. But as you know, 2022 guidance, we will do with the full year results.

Yes. No, that's fair. And second question, just can you talk about the operating leverage that you're getting in the second half? Now I know it's partly slower investments, maybe what other areas -- obviously, Comparex synergies are on target. I guess still, though, there's some catch-up to do, I think, in the second half and basically trying to get a sense of just how -- are you very confident in that catch-up? Or are there any things that we should sort of watch around the edges that it could sort of kind of be better or worse?

Yes, you're absolutely right. I mean if you do the numbers, then you have to see that we have to have an accelerated growth in the second half of the year. But that's not the only piece, right? We also have to make sure that the cost base goes into the same direction. We do have a high-performance culture in SoftwareONE. And we're absolutely reiterating this over here. That's where we -- our investment into our resources in the first half of the year, we will see the payback and we will see the acceleration in the second half of the year. The Comparex synergies I just mentioned, yes, we are on track on that. But on top of that, the high-performance culture coming out of COVID, coming out of a more empathy year of 2020, we are back on a high performance. And that paired with our investment in H1 will accelerate our growth.

Your next question comes from Alastair Nolan from Morgan Stanley.

Just to follow up on Stacy's question. Am I right in saying in terms of getting to the 30% EBITDA margin for the full year, if we assume a flat cost base, we're basically implying an acceleration to close to mid-20s ex FX growth, so I think 23% ex FX growth, which is a pretty material acceleration? Can you confirm that? And what gives you the confidence to see an acceleration of that scale? And then I guess more broadly, as we look into the midterm, if Services is going to continue to accelerate and become a larger component of the overall business, I think you've alluded to 50% in the midterm, how do we get comfortable that EBITDA can grow at a faster rate than gross profit given Services typically come at a lower margin GP to EBITDA? And so those would be the 2 questions, please.

Yes. Thanks, Alastair. So on the first point, yes, you're absolutely right. It means that we will be exiting 2021 with a higher growth rate. For us, this is -- it's absolutely clear that our growth is further accelerating in the second half of the year. There are multiple components over there which gives us this confidence. First of all, we have -- we already have a run rate business. And you have seen this is now 59% of the overall, 35% of the GP. That is continuously to grow, and that's already a given. It's booked. It's banked into the system. We have a pipeline with a high conversion ratio where we have the intelligence of what the win rate is in the past. And if you simulate this, we are very confident on that as well. And both together for us is absolutely clear that the acceleration in the second half of the year will continue. We already see this, Alastair. It's already visible now in the running environment. On the second question where you say if you pivot to a more solution and services organization, I just want to reiterate our strategy. Our strategy is not to become solution and services alone. Our strategy and where our main differentiator is that we have the synergy between Software & Cloud and Solutions & Services, which is quite unique in the market. And to -- and I know where you come from with your hesitation on saying a normal system integrator would have a different margin profile, right, on the EBITDA side. But we don't want to become a system integrator. We want to be a next-gen service provider where we drive IP, where we drive automation, a fresher approach where even on the Solution & Services, it is absolutely isolated from our headcount growth, and we have a scalability where the contribution margin outweighs our investments. This paired with our digitization on the reselling space where we have now not only a restriction to 90 countries and to 65,000 customers, which we have today, but once you are on the marketplace, you are certainly in a digital experience where the addressable market is a completely different one. And you take the human factor out of it with the digital experience, it means whatever margin you have and that flows directly through to the bottom line. So that gives us the confidence. I understand that we have to talk more about this, and we will do this in the Capital Markets Day because that's something that I think there's still a gap from a communication point of view.

Your next question comes from Knut Woller from Baader Bank.

Yes. Actually, 2 questions. Dieter, you mentioned that you target to achieve around about CHF 100 million gross profit when you do something like the strategic investments that you announced with the release of the 2020 results. Can you share with us something like a time frame when you expect to achieve these run rates in terms of gross profit? When should we see that? And then secondly, getting back on the margin side, I mean, to get to your margin target, you probably need something like a 35% or mid-30s margin in the second half, which looks a bit more than you have done in H1 last year. So to which extent does this margin target depend on the recovery of LatAm and to which extent is that already penciled in, but what you have achieved today and given your expectation of a broadly stable cost base in H2 versus H1?

Yes. Thanks, Knut. Very good point, both questions. On the first one, on the strategic growth areas, remember, we are talking about 5 strategic growth areas. So the principle, which I said, if we invest into a practice, if we build out the strategic growth area, the addressable market has to be minimum CHF 100 million GP. That's the minimum. Otherwise, we are not investing into it. And what Alex mentioned as well, we always choose areas, we always choose areas where there's a humongous addressable market, and he calls it customer pain point, I call it a burning platform. You see this, and SAP in the cloud, they have to move by '27. On application services, they have to scale out and modernize their applications -- their legacy applications. You see this in the construction vertical. 38% of CO2 emission is from the construction industry. With our solution, we are able to impact this positively. So these are the burning platforms which help us to accelerate those strategic growth area quite tremendously. Now you want a definite time line from me, and I have alluded to it actually in the call. I said those 5 strategic areas will all cross the CHF 100 million in the next 2 years. That's -- and it's not aggregated, it is individual. And of course, we will evolve further, and there might be a change on another growth area. But for those which we have visibility and we speak here absolutely out of confidence, we see the pipeline, we see the [ win road ], and we see the ramp-up and the demand from the customer side. On the -- that's the first one. On the second one, in terms of the EBITDA margin profile. So our front-loaded investments really will support us. Our resources will be productive. And you see this in any sales and service organization. If you invest in the first half of the year, you get the productivity in the second half of the year. If you do it staggered and you do it out of seasonality every month continuously for 12 months, you never have a jump start on productivity. What we did is a conscious effort to really hire and use also the period where at the moment, in the first half year, the talent crunch wasn't really there because many haven't really come out of COVID, and we finished with the hiring. So we will see the productivity over there backloading our margin profile. The other aspect is, of course, if I take this handful of countries and normalizing on an average growth level which we have, then we are absolutely on what we are seeing. And just to reiterate, our EBITDA margin, what we guide is approximately 30%.

Your next question comes from Michael Briest from UBS.

A couple from me. Just to look at the cost base and the guidance that it's flat sequentially. I mean if I think about headcount, it's up 600 in the half, and presumably that didn't all happen on January 1. And similarly, you've announced a couple of acquisitions of about 400 people. And also, you have this plan to get 5,000 new staff and recertified staff on Microsoft by the end of 2023. So are you saying that headcount is going to be sort of flattish in the second half on the first half? And then just, Dieter, coming back on your comments on approximately 30%, I mean, would 29% be within the ballpark there? And I'm curious what you said just now about the CHF 100 million GP potential in each of those 5 strategic areas being deliverable by 2 years because if I put that on top of last year's gross profit base, I get well over mid-teens gross profit growth. So maybe you could just square the circle there.