Q&A with SoftwareOne (and Crayon) -
What did we learn?
As we communicated Wednesday 26th, we had some questions for SWON for their visit in Norway, and this is what we learned:
Summary:
SoftwareONE have misled their investors regarding past cost savings. No good answer regarding profitability issues in the very unprofitable Services area. 2025 Margin guidance seems as unrealistic as it did prior to the meeting.
Question 1: Cost savings in 2024 and 2025
The latest cost program is progressing extremely fast – can we trust it to reduce costs when the last program did not?
SoftwareOne CEO responded that the last round of cost savings called "operational excellence program", starting in 2023 ending in Q2 2024 was not a cost cutting program. It was aimed at improving internal organization and operations.
They did however communicate in their Q2 presentation that cost savings of 76 MCHF had been achieved, and the total cost of this was 48 MCHF….. To us, this looks like they mislead their investors in Q2 2024, if there indeed were no realized cost savings. We anticipate that there will be some real-life cost savings in 2025. How much, however, is difficult to predict and we are certain that they will not be in line with the communicated targets.
Question 2: Services sectors drop in margin in Q4
What happened in the services sector in Q4 2024 that resulted in such poor performance in the quarter?
Answer: The reason for this decline was that Services, having grown more than Marketplace in Q4 2024, was allocated a higher share of the Sales, General and Administrative (SG&A) cost. This does not really answer the question in a good way, even if the answer is technically correct (we did the math). The main issue of their Services area is what happens after the Adj. EBITDA line (adjustment, D&A/investments, etc), leaving Services wildly unprofitable still. For proof, go back to our previously communicated findings.
Question 3: Marketplace sector
How can investors trust the 2025 margin guiding with so many planned cost reductions (with low credibility) and headwinds of 20-30 MCHF as communicated after Q3 in MSFT incentives?
Answer: They reiterate that they are on track with a cost cutting program and that this guiding also is based on the budget process of the entire organization. At the same time, they state that they know they have very little/no credibility in their communication to investors. In sum, we get no more conviction than we had before that their targets are realistic. We expect another guidance miss on Adj. EBITDA margin, same as in 2024.
Other topics covered:
Cost synergies in SoftwareONE/Crayon was also discussed in some length during the meeting without building any new credibility on the question.
A shareholder reflection
August 21st , 2024, SWON gave a presentation to the market about Q2/H1. There were 3 messages to the market that were well received and share price was 18CHF;
growth is all good
we have launched a successful new Go to Market model (with one-off cost taken). Perception growth + success leads to future (even better?) growth...right?
our "operational excellence program" is finished with savings sized 76MCHF on an annual basis.
A few months later management states;
there was no such thing as a cost savings program (but we'll start a new one) and SG&A costs increased in 2024 with 50 MCHF
our Go to Market model is a failure, we have to fix it, we lose market share
you have -14,5% growth in Marketplace sector in Q4 and a dramatic drop in Services margins (from a very low level)
Share price is around 6,5CHF
You have misled investors (that's a mild statement) and it should have some consequences.....do you agree? Who will start the dialogue with SIX Swiss Exchange? We won’t. We have never been shareholders in SWON.
Best regards,
David and Sverre
Hvaler Invest AS
Lillestrøm, Norway
28.02.25
Disclaimer:
Hvaler Invest is a significant shareholder so you cannot trust us (or perhaps you can?)