GK Software SE — Interim / Quarterly Report 2020

Nov 26, 2020

January to September 2020

Interim Statement

Summary of Consolidated Results

				Change
		30.9.2020	30.9.2019	(2020/2019)
Sales	EUR K	85,251	79,745	6.9 %
Operating performance	EUR K	85,649	79,745	7.4 %
Total operating revenue	EUR K	87,927	82,065	7.1 %
EBIT	EUR K	5,577	(4,029)	-
EBIT margin (on sales)	%	6.5	(5.1)	-
EBIT margin (on total operating revenue)	%	6.3	(4.9)	-
EBITDA	EUR K	11,831	2,607	>250 %
EBT	EUR K	4,093	(5,228)
Net profit / loss for the period	EUR K	2,972	(6,735)	-
Earnings per share (weighted)	EUR	1.43	(3.46)	-
Earnings per share (diluted)	EUR	1.43	(3.46)	-
Equity ratio	%	43.1	33.4	-
Net debt	EUR K	(742)	9,258	(108.0) %
Employees		1,071	1,173	(8.7) %

9M 2020: Further growth in turnover, above-average growth in profits

Dear shareholders,

Regardless of the current social and economic situation around the world, GK Software SE was able to continue its growth course and also improve the development of its profits disproportionately during the third quarter of this year. Turnover reached a figure of EUR 85.25 million after nine months and therefore improved by 6.9% compared to the same period in the previous year (9M 2019: EUR 79.75 million). The company was able to increase its EBITDA to an even greater extent; at EUR 11.83 million, it was EUR 9.22 million higher than the comparative figure in 2019 (9M 2019: EUR 2.61 million). The main reasons for this were the results of our programme to increase efficiency, which we launched in the middle of 2019 and which is still being continued at this time. We have identified potential for reducing costs within this programme and are making full use of it so that relevant performance indicators like personnel costs and cost efficiency portray the development of our business and suggest the level of stability for the future too. This has enabled us to at least largely distinguish between the effects reflected in 'Other operating expenditure' because of the Covid-19 crisis – such as the extreme reduction in travel expenses – from those triggered by the programme and we are certain that at least half of this reduction in costs is due to the measures introduced by the efficiency programme. As a result of all this, we achieved operating profits (EBIT) of EUR 5.58 million, after this figure had still been EUR (4.03) million at the same time in the previous year. The results for the period also improved significantly on this basis and amounted to EUR 2.97 million (9M 2019: EUR (6,76) million).

Despite the restrictions caused by the Covid-19 situation, our business with new customers also made a positive contribution to the development that has been described here. We were able to persuade eight customers of the benefits of our core solutions during the first nine months of the year. Overall, we were able to gain two customers in the USA, one in North Africa and various European customers. The new customers gained during the first nine months of 2020 mean that we will have to introduce far more than 10,000 new installations during the next few years. It is also gratifying to note that two retailers have opted to introduce cloud4retail as SaaS (software as a service).

Our services related to the German fiscalisation law have also developed in an extraordinarily positive manner. Our subsidiary, Deutsche Fiskal, is able to offer the only certified cloud solution at this time and has established an excellent position in the market place for itself so that we have already achieved the market share that we envisaged. The solution moved into standard operations on 2 November and was able to launch productive operations for its customers. However, a significant contribution to turnover is not expected from this business until 2021, as the German parliament has once again postponed the deadline for the mandatory signing of each transaction to 1 April next year.

Apart from the adverse effects in new business, the Covid-19 crisis only had a very limited effect on the development of business at GK Software during the first nine months of 2020. And even in the current final quarter of the year, we are continuing to see a high level of utilisation in our project business segment, as only some of our customers have been affected by the closure of stores. We also believe that the current situation will create a situation where the retail sector will press ahead even more strongly with the digitalisation of its business and new topics like Click & Collect, mobile payments or self-scanning will experience a boost. We are also taking this into account in the expansion of a mobile range of solutions for consumers, which we have introduced in the market using the Mobile Customer Cloud brand. This will also be an important focus for developments during the coming financial year.

Our solution for fuel stations and convenience stores known as GK Drive is now being used in the first productive applications and will probably be fully rolled out at our first customer in the USA by the end of the year. We are also expecting further sales input from GK Drive in the convenience business in the USA, a very dynamic segment in the retail sector, and from our fully developed Hospitality solution, which will also enter the initial pilot stage at one customer this year. These solutions also complete our services for major retailers that also operate fuel stations and restaurants, as we can now offer end-to-end solutions with special features for these formats. Customers will benefit from overlapping processes, loyalty programmes and similar effects.

It is still very difficult to make reliable forecasts that go beyond fairly short periods because of the corona crisis. Despite this, we are certain that we will achieve the forecast that we issued for the 2020 financial year. We are also convinced that, without the special developments caused by the global pandemic, we would have been in a position to achieve our original medium-term forecast that ends with this financial year. As far as the future is concerned, a great deal will depend on how quickly restrictions can be reversed and how consumer sentiment develops based on the economic effects of this crisis. On the basis of the results achieved during the first nine months of the year and the successfully adopted pathway to significantly higher profitability, our existing sales opportunities and developments in the Deutsche Fiskal business, we are expecting positive developments during the rest of this year and during 2021.

Market environment

The prospects for the retail sector in 2020 are currently being assessed in very different ways, depending on which sector is involved. The German Retail Federation (HDE) is expecting growth of 1.5 percent in 2020 compared with the previous year. However, there are retail segments that have suffered a significant decline. A decline in turnover of 11% overall is expected for the segments that have been affected by the lockdown. In contrast, the online retail sector is expected to grow by almost 15 percent. As far as the store-based retail sector is concerned, the food retail segment, but also DIY markets or furniture stores will probably be the winners. These developments can be seen in all the major retail markets around the world and will have effects on the investment behaviour of the retail sector. We can therefore assume that long-term developments have been introduced, which will open up new opportunities for GK Software, as digitalisation and omnichannel retailing will experience a further boost.

Employees

After GK Software still employed 1,168 employees at the end of last year, there are currently 1,071 employees (correct on 30 September 2020; 1,179 in the previous year) working for the Group; this represents a reduction of 108 compared to the end of the same period in the previous year.

Segment reporting

Turnover in the GK/Retail segment amounted to EUR 80.26 million, following a figure of EUR 73.70 million in the same period in the previous year; it therefore rose by 8.9 percent. Turnover in the IT Services business segment declined according to plan from EUR 6.03 million in the same period in the previous year to EUR 5.00 million.

By switching our turnover reporting to a new system since the report on the first half of the year, we are pursuing the goal of explaining the makeup of our turnover more clearly. The aim is to ensure that it is clear which kind of turnover is recurring or of a repetitive nature. The former includes the contractually agreed recurring turnover (recurring revenues in the classic sense), which equally involves turnover generated by software maintenance and software usage rights granted as part of subscriptions or SaaS services. Our business model also gives rise to recurring turnover, which may not have a contractual basis, but has been repeated with consistent regularity for many years according to our experience (re-occurring revenues). This includes Smart Extensions, which are fairly small expansion modules, and the Extensions Platform, which are extension modules based on a maintenance contract. Both kinds of turnover can be reliably planned and grow with the increasing number of new customers, as they regularly commission us to perform extensions to the platforms that they operate after the conclusion of the initial project.

The following picture emerges after nine months in 2020. Turnover amounting to EUR 5.27 million was generated in the standard platform licences segment within the Group, most of it in the GK/Retail core business field. Of this revenue, EUR 2.14 million was earned as subscription revenue. The Extensions Platform, which is linked to maintenance, reached a figure of EUR 16.27 million. The Smart Extensions generated turnover of EUR 33.70 million.

The maintenance type of turnover amounted to EUR 16.05 million, of which EUR 14.84 million was attributed to GK/Retail and EUR 1.21 million to IT Services. Turnover amounting to EUR 5.06 million was received for operations support. Of this turnover, EUR 3.55 million came from GK/Retail and EUR 1.52 million from IT Services.

As far as Retail Consulting was concerned, turnover of EUR 7.33 million was generated in the core business segment. The remaining turnover amounted to EUR 1.58 million, of which EUR 0.95 million was generated in the IT Services segment.

Recurring turnover (contractually agreed or without any contractual basis) therefore accounted for EUR 69.34 million or 81.4% of all turnover during the first three quarters of the financial year.

As regards the relation between the segments, 94.1% of all turnover was generated in the GK/Retail segment (9M 2019: 92.4%). This meant that the share generated by the IT Services segment continue to decline, in line with our expectations. Most of the turnover generated amounting to EUR 5.00 million was achieved in the field of business with the euroSuite solution.

The exchange of services between the segments is regulated by service agreements, which are geared towards the normal revenues in these segments in outside markets. Administration services are accounted for on the basis of supply agreements in line with an estimate of the costs related to the time required to provide the administrative services based on experience.

Assets and financial situation

The Group's liquid funds grew by EUR 3.37 million compared to the end of 2019 and now amount to EUR 11.46 million. The total current and non-current bank liabilities have been reduced by EUR 9.28 million according to our plans.

As far as the Company's opportunities and risks are concerned, certain new risks have been caused by the corona crisis, but new opportunities have opened up too. The developments in 2020 have shown that significant parts of the retail sector have been severely affected by lockdowns or partial lockdowns, while others have been very stable or have even grown as a result of the crisis. It is therefore not possible to make any general statements about the willingness on the part of the retail sector to make investments. A significant part of future developments will depend on whether the situation starts to recover again in the long term in the spring of next year.

Financial forecast and outlook

Developments in the 2020 financial year so far have shown that the company is well on course to meet the forecast that it issued for 2020, both in terms of turnover and operating profits; this had predicted a slight increase in turnover and a significant increase in profitability.

The greatest challenge caused by the Covid-19 crisis for us currently involves the area of new business and particularly granting licences in this field. Because of the renewed extensive restrictions on contact and travel, it is unclear whether we will be able to still make full use of some of our existing sales opportunities during the fourth quarter of the year. As a result, all statements are therefore subject to the proviso that it is difficult to estimate the duration of the crisis and its consequences in the different regional markets where the corporate group is operating.

Schöneck, 26 November 2020

The Management Board

Rainer Gläß Chief Executive Officer

André Hergert Chief Financial Officer

Consolidated Balance Sheet on 30 September 2020

Assets

EUR K	30.9.2020	31.12.2019
Property, plant and equipment	14,745	16,988
Right of use assets IFRS16	7,311	8,914
Real estate held as a financial investment +)	7,089	6,350
Intangible assets	26,068	27,607
Financial assets	9	49
Active deferred taxes	434	713
Total non-current assets	55,656	60,621
Goods	13	35
Unfinished goods and services	-	-
Auxiliary materials and supplies	329	381
Initial payments made	8	8
Trade accounts receivable	20,049	23,982
Trade accounts receivable from ongoing work	14,923	14,278
Income tax claims	925	820
Other accounts receivable and assets	4,235	5,978
Cash	11,455	8,086
Total current assets	51,937	53,568
Balance sheet total	107,593	114,189

Liabilities

EUR K	30.9.2020	31.12.2019
Subscribed capital	2,048
Capital reserves	28,400
Retained earnings	31
Other reserves	(1,681)
Profit brought forward	13,545
Shortfall for period minorities interests	2,912
Equity attributable to GK Software SE stockholders	45,255
Equity attributable to noncontrolling interest	1,128
Total equity	46,383
Provisions for pensions	2,619
Non-current bank liabilities	4,706
Non-current leasehold liabilities	4,812
Convertible bond	14,119
Deferred government grants	776
Deferred tax liabilities	2,958
Total non-current liabilities	29,990
Current provisions	1,467
Current bank liabilities	6,008
Current leasehold liabilities	2,634
Liabilities from trade payables	2,555
Initial payments received	5,273
Income tax liabilities	216
Other current liabilities	13,067
Total current liabilities	31,220
Balance sheet total	107,593	114,189

Consolidated Statement of Income from 1 January until 30 September 2020

EUR K	9M 2020	9M 2019	FY 2019
Ongoing business operations
Turnover revenues	85,251	- 79,745	115,448
Own work capitalised	398
Other operating revenues	2,277	2,320
Turnover and other revenues	87,926	82,065	119,285
Materials expenditure	(6,154)	(4,141)	(6,229)
Personnel expenditure	(56,519)	(59,107)	(78,134)
Depreciation and amortisation	(6,254)	(6,636)	(8,826)
Other operating expenditure	(13,423)	(16,210)	(22,666)
Total operating expenses	(82,350)	(86,094)	(115,855)
Operating results	5,576	(4,029)
Financial income	39	100
Financial expenditure	(1,523)	(1,299)	(2,271)
Financial results	(1,484)	(1,199)	(2,197)
Income tax results	4,092	(5,228)
Income taxes	(1,121)	(1,507)	(4,372)
Consolidated shortfall / surplus for the period	2,971	(6,735)	(3,139)
of which attributable to noncontrolling interest	60	(9)
of which attributable to GK Software SE stockholders	2,911	(6,726)	(3,137)
Other results after income taxes
Items, which will be reclassified in the consolidated profit and loss statement in future under certain conditions
Differences in exchange rates from recalculating foreign business operations	(97)	336
Items, which will not be reclassified in the consolidated profit and loss statement in future
Actuarial gains/ losses from defined benefit pension plans	0	0
Overall results	2,874	(6,399)	(3,928)
of which attributable to noncontrolling interest	60	(9)
of which attributable to GK Software SE stockholders	2,814	(6,390)	(3,926)
Earnings per share (EUR/ share) from the consolidated surplus/ shortfall - undiluted	1.43	(3.46)

Consolidated Cash Flow Statement from 1 January until 30 September 2020

Cash flows from operating business

EUR K	9M 2020	9M 2019
Cash flows from operating business
Surplus/ shortfall for period	2,972	(6,735)
Share option scheme (non-cash expenditure)	279	337
Income taxes affecting results	1,121	1,507
Interest expenditure affecting results	1,523	1,299
Interest income/ expenses affecting results	(39)	(100)
Profit/ loss from the sale or disposal of property, plant and equipment	(17)	(6)
Reversals of deferred public sector subsidies	(37)	(37)
Write-downs recognised for receivables	174	327
Write-ups recognised for receivables	(204)	(33)
Depreciation and amortisation	6,254	6,636
Net profits from financial tools assessed at their fair value	50	301
Other non-cash revenues and expenditure	430	(582)
Cash flow from operating business	12,506	2,914
Changes in net current assets
Changes in trade accounts receivable and other receivables	4,995	500
Changes in inventories	74	171
Changes in trade accounts payable and other liabilities	(1,553)	(3,367)
Changes in initial payments received	1,726	(876)
Changes in provisions	(559)	557
Income taxes paid	(1,072)	610
Net inflow of funds from operating activities
Amount carried forward	16,117	509

Cash flows from investment and financing activities, loans and cash and cash equivalents

EUR K	9M 2020	9M 2019
Amount carried forward
Net inflow of funds from operating activities	16,117	509
Cash flow from investment activities
Payments for property, plant and equipment and non-current assets	(1,463)	(3,204)
Proceeds from disposals of fixed assets	17	6
Interest payments received	36	43
Net cash outflow for investment activities	(1,410)	(3,155)
Cash flow from financing activities
Taking out equity	813	5,661
Taking out loans	0	1,500
Interest paid	(667)	(474)
Repayment instalments for loans of loans	(7,449)	(2,331)
Issue of convertible bond	(2,205)	(2,188)
Net inflow (previous year: net outflow) in cash from financing activities	(9,508)	2,168
Net outflow of cash	5,199	(478)
Cash at the beginning of the 9 months	2,291	6,144
Cash  at the end of the 9 months	7,519	5,731
Impact of changes in exchange rates on cash	29	65
Summary of cash and cash equivalents

T.06

Cash and cash equivalents at the end of the 9 months	7,519	5,731
Utilisation of current account credit/ credit card/ exchange rate	(3,936)	(6,894)
Liquid assets	11,455	12,625
EUR K	9M 2020	9M 2019

Financial Calendar

28 April 2021 Annual report as of 31 December 2020

27 May 2021 Interim statement as of 31 March 2021

17 June 2021 Annual shareholders' meeting 2021 in Schöneck/V.

26 August 2021 Interim report as of 30 June 2021

November 2021 Analyst conference in Frankfurt/M.

25 November 2021 Interim statement as of 30 September 2021

Imprint/Notes

Imprint

Publisher:

GK Software SE Waldstraße 7 08261 Schöneck

P: +49 37464 84-0 F: +49 37464 84-15

www.gk-software.com investorrelations@gk-software.com

Chairman of the Supervisory Board:

Dr. Philip Reimann

Management board:

Dipl.-Ing. Rainer Gläß, CEO Dipl.-Kfm. André Hergert, CFO

Commercial Register Chemnitz HRB 31501

USt.-ID. DE 141 093 347

Photos:

Image archive GK Software SE, Title: istockphoto

Contact Investor Relations

GK Software SE Dr. René Schiller Friedrichstr. 204 10117 Berlin

P: +49 37464 84-264 F: +49 37464 84-15

rschiller@gk-software.com

Notes

Note to the statement

This interim statement is the English translation of the original German version. In case of deviations between these two the German version prevails. This interim statement can be downloaded in both languages at https://investor.gk-software.com.

Note regarding the rounding of figures

Due to the commercial rounding of figures and percentages small deviations may occur.

Disclaimer

This interim statement includes statements concerning the future, which are subject to risks and uncertainties. They are estimations of the Board of Management of GK Software SE and reflect their current views with regard to future events. Such expressions concerning forecasts can be recognised with terms such as "expect", "estimate", "intend", "can", "will" and similar terms relating to the Company. Factors, which can have an effect or influence are, for example (without all being included): the development of the retail and IT market, competitive influences including price changes, regulatory measures and risks with the integration of newly acquired companies and participations. Should these or other risks and uncertainty factors take effect or should the assumptions underlying the forecasts prove to be incorrect, the results of GK Software SE could vary from those, which are expressed or implied in these forecasts. The Company assumes no obligation to update such expressions or forecasts.