Commenting on FY 2020 Financial Results
On Tuesday 23 March 2021, the Board of Directors approved the draft individual and consolidated financial statements as of 31 December 2020. During the same meeting, it proposed to change the legal name of parent company from “MailUp S.p.A.” to “Growens S.p.A.”.
More information on the rationale behind the proposed new name can be found in this article.
As customary, a conference call was held following this meeting, where the Group top management commented on the results, answered questions and addressed doubts. Hosts of the event were Mr Matteo Monfredini, Chairman & CFO, Mr Nazzareno Gorni, CEO, and Micaela Cristina Capelli, Executive Director and Investor Relator.
Here below you can find the recording of the conference call and its transcript. For any questions or for further information, you can email firstname.lastname@example.org at any time.
Micaela Cristina Capelli
Good morning and good afternoon, everyone. Welcome to our annual call concerning our full year 2020 results. Please let me welcome our Founder and Chairperson, Mr. Monfredini and our Founder and CEO, Mr. Gorni. Mr. Monfredini will briefly go through the main consolidated results for the full year 2020, whereas Nazzareno will go through the main developments.
Let’s see our 2020 consolidated results in depth. The full year profit and loss posts total revenues in excess of € 65.2 million, showing an increase of € 4.4 million or a +7.3% versus full year 2019.
Analysing by business line, we can see that SMS line – dynamic, volatile and highly price-oriented by nature – posted the biggest topline of € 44.5 million, growing by 4.2% year on year and suffering from the material slow-down in drive to store traffic related to retail clients during the various lockdown periods. Notwithstanding this, it’s important to underline that the marginality of SMS has grown over twice as much as sales. This is due to a favourable mix towards transactional messages.
The email line, the steadiest and most consolidated within the group, showed a +15.5% increase and € 2.2 million, with revenues in excess of € 16.5 million. In detail, good performance comes from the MailUp email channel with an 8% increase year on year.
Excellent performances were recorded from the BEE editor, which increased +52% with a substantial growth to € 3.9 million including the Forex effect (above 55% in USD). Acumbamail increased its revenues +30% year on year.
The predictive marketing line revenues, that refer to Datatrics products, amounted to € 2.7 million growing by 18.9%. Slower growth versus the previous fiscal year is due to the dramatic effect of the COVID-19 related crisis. In greater detail, on one hand it caused a material slowdown in the sales process and a contraction of marketing investments, on the other hand, a greater churn of expired subscriptions, and finally, a persistent disadvantage in the travel and the hospitality industries.
There are two other important highlights I believe it’s important to mention on the top line figures – first of all, foreign revenues represent 54.1% of total revenues and amounted to € 34.5 million, showing a +20% increase year on year. Secondly, recurring revenues represent 29% of total revenues with a +19% increase.
Consolidated gross profits show an important increase of 24.6% year on year, going from a relative percentage of revenues of 27.5% for the full year 2019, to 31.9% full year 2020. This increase is mainly due to a mix of cost savings and recurring business contribution. Gross Profit growing over 400 bps on sales (from 27.5% to 31.9%), with a much larger increase than sales (+24.5%), shows the effect of optimizations and cost savings.
Consolidated EBITDA amounted to € 5.1 million, growing by 6% versus full year 2019, for a 7.8% margin on sales, steady versus the previous period. The lower increase of EBITDA compared with the gross margin is related to investments in sales & marketing and R&D that grew respectively by 37.7% and 74.6%.
On top, to face the current challenge, MailUp Group has launched a reorganisation of Datatrics operations, with the aim to respond in a more efficient way to the evolution of the market. Such a reorganisation includes an enhanced infrastructure migrated on Amazon AWS and a restated business model towards a more scalable and self-provisioning model, relying on the relevant contribution of partners.
In this framework, no headcount reductions are contemplated, whereas the Italian branch Datatrics S.r.l. will be dissolved with a procedure started on 26 November 2020, with reallocation of personnel to MailUp SpA. Full outcome of the reorganisation is expected by Q3 2021. The restructuring will allow a bigger focus on unified client management, leveraging on a leaner and more qualified organisation. Italian clients will be managed by the Enschede headquarters, whereas trading activity in Italy will be only dedicated to the indirect channel (digital agencies).
As I said several times during 2020, our goal is to push organic growth of our innovative products BEE and Datatrics, and to support growth of other consolidated businesses in order to move our revenues more and more towards a recurring business model, typical for the software as a service industry.
If we look at the 2020 revenue breakdown by business unit, we can see that BEE has grown +52%, Datatrics almost +21%, Acumbamail +30%, MailUp and Agile Telecom by +4%. In 2020 many investments have been concentrated on BEE and Datatrics business units, that for sure have a higher increase rate, but not enough to have a significant weight on consolidated revenues.
Consolidated margins are deeply affected, from the top line point of view, by the impact of amortisations and depreciation cost growth, that by nature are non monetary items and are related to amortisation of investments.
In addition to typical investment in R&D and general, you can see right of use amortisation, related to IFRS 16 accounting principle change and the partial write-off of the goodwill on Globase. As you already know, it was a successful M&A operation of a Danish company acquired in 2015 with the aim to increase our presence in the Nordics market. Nowadays Globase customers have decreased in number, and we chose to adjust the balance sheet value with the real value of the company.
Earnings before interests and taxes have reached € 1.4 million, compared with the € 1.8 million of full year 2019. Net financial charges for an amount of 179,000 Euro have a negative impact on earnings before taxes, that amount to € 1.2 million.
The increase of net financial charges amounts compared to 2019 is related to foreign exchange losses on USD/EUR exchange.
Consolidated net earnings for full-year 2020, after estimated current and deferred taxes, amount to € 0.6 million, decreasing by 50.9%.
Looking at the net financial position report, we can see that cash exceeds € 9.9 million, growing by € 0.9 million.
Figurative debt from IFRS 16 adoption amounts to € 3.7 million, while financial depth amounts to € 3.6 million. The main increase is due to subsidised government loans.
The consolidated net financial position as of 31 December 2020 is negative (for net cash) and amounts to € 2.5 millions, improving versus the previous recorded amount of € 2.4 millions as of 31 December 2019.
I believe that 2020 was a very challenging year for the majority of industries. In our case, some business lines – such as the email channel – saw a positive impact, while others, linked to industries strongly affected by the COVID-19 related crisis, have suffered in growth. For example, SMS and predictive marketing.
Our response to the crisis was to continue to invest in our projects, in order to start stronger when economic growth picks up again. All in all, I can say that we are satisfied about our 2020 results and ready to start growing again.
On my side, just a few highlights. First of all, growth was good considering the situation, but for sure it’s not the growth that we expect in a normal scenario.
If we look deeper into the growth numbers, we see that growth coming from abroad has increased: international revenue growth is +20%, while the Italian revenue actually is -4%. This -4% is mainly related to the SMS traffic that decreased a lot during the lockdown periods, as Matteo already mentioned. So that’s a good point in my view because this means that we are growing outside Italy, where the market is more favourable and also that we are able to compete on a global scale.
Secondly, since about 10% of our revenues are in the US or in America, this is another reason why growth is not so high. Basically, the exchange rate is penalising us. All our revenues in the US and North America, but also in Latin America, are in US dollars, not in euros.
And finally, the third highlight is related to the cashflow. Last year we paid the last two tranches of the Datatrics acquisition in cash, and this accounts for nearly € 800,000. It’s another big impact in terms of cashflow. Those were the last payments related to the Datatrics acquisition.
The first question is about M&A: can you give a few more details about the timing and perspectives of potential M&A deals?
We have been working on the M&A side for a couple of years, after the Datatrics acquisition. Today we are looking at a target that has a size of at least 4-5 million euros in sales, and with a positive cash flow. Those are the main requirements. We’re looking at companies preferably in Europe or in North America.
We are looking at two kinds of companies – the first is a target that could be complementary with the BEE business or the Datatrics business, so an acquisition that can enlarge our product portfolio and where we can develop more synergies. The second kind of acquisition is something closer to MailUp, so in this case, we could acquire a competitor of MailUp in the same region where we already are or in new markets to enter new markets more quickly. The second category of targets is generally cheaper than the first kind of targets.
In particular, our goal is to complete an acquisition within this year. Currently we are working actively on a specific target and we also are hiring an advisor that is helping us in this transaction.
It’s an Italian target and that’s the closest opportunity we have, but we also have other opportunities. We had one opportunity in the US that now is no longer happening, mostly because of evaluation. As you know, in our industry in the US the software service companies are evaluated much more than in Italy and this makes it challenging for us to acquire a company in the US. We have another opportunity in the UK right now, with the same size.
How close to a decision are you on the listing side?
That’s something we are already working on. We are considering different markets. Our aim is to uplist on a different market that can recognise a higher valuation, with better visibility and better liquidity.
Our goal is to complete this process within 2022. It’s important to say that we would like to complete an M&A deal before starting the uplisting process, because acquiring a company during the uplisting process could make things much more complicated because as you know, there is a lot of paperwork. If we acquired a company during this process, it would become quite a mess.
We want to complete the acquisition first and then start the uplisting process.
Micaela Cristina Capelli
Of course it is our best interest to move forward with regards to what is best for the company and our investors. We’re constantly working hard on the best options in terms of liquidity and visibility. We are assessing multiple options regarding the markets, both in Italy and abroad. Of course, it is not only a matter of qualifying with formal requirements, which makes us eligible as of today already, but of qualifying with substantial requirements.
We really want to be viable and feel the interest of investors, so that we might be in the position of announcing and increasing the coverage of the stock and the awareness on MailUp, which is becoming Growens, and its story to a wider and broader audience within the near future. We are taking part in as many conferences as we can, and testing and setting up a path that brings us very smoothly and very efficiently towards the best market for us.
Rest assured that we’re really working hard to assess the best options, which bear costs, of course, so we really need to pay the utmost attention.
Another question concerns the availability of guidance and our business plan for the financial community.
We know this is something that we are lacking at the moment. As Micaela mentioned, we already are compliant with many requirements, including the quarterly reports, for example. But outlook and disclosure of forecast is still something that is missing.
We are presently changing our ERP and this for sure will help us to have quicker and deeper control on our figures. This should allow us to also provide more accurate forecasts.
We have advisors covering our stock. At the moment we talk with three brokers following our shares and covering our stock. They are providing projections and forecasts.
I think that within this year we could be able to start sharing some outlook for the future.
I can confirm that we are working on having a forecast for the next year. Let me just point out that it’s really hard to make forecasts for 2020 and 2021, because of the economic crisis that is not yet finished. But we are going to structure our controlling department and accounting department with the correct instruments to do that as soon as possible.
We’ve got another question which regards the projected hiring plan for 2021, for 60 more people to be introduced into the group. Nazzareno, can you comment on the type of people that we are hiring and on the potential impact that we expect from them on the growth of the Group?
The hiring plan is quite aggressive. Most of the people are going to be hired in the MailUp business unit, Datatrics business unit, and BEE business unit. We always hire full-time employees, and don’t recur to offshore developing or freelancers. That’s our policy.
Of course, due to the COVID situation, we started also hiring full remote positions. This is helping us to find the profiles that we are looking for. In particular, in the last couple of months we completed some very important hirings, including the Head of Marketing at Datatrics, the Head of Marketing at BEE, the Head of Sales both at BEE and Datatrics, and also the Head of Customer Value Management at Datatrics. We are also hiring the Head of Marketing at MailUp. We are building the foundation to start a scale-up process. In particular, BEE and Datatrics were almost a startup with 40-50 employees.
If we want to scale up, it’s really important now to leverage on experienced people. That’s where we spent most of our efforts in the last few months. Now only one key role is missing, the Head of Marketing at MailUp. I would say that around half the positions are in Italy and half abroad, in particular in the Netherlands and in the US.
I would ask you to briefly comment on the change of name that the Board of Directors has proposed for the General Shareholders Meeting to pass. Can you explain the rationale of this name change and where it came from?
Micaela Cristina Capelli
I can testify that many of our investors were reluctant to consider an investment into an email-based business. When they realised that so much more was inside the Group, they were happy to discover that we outgrew our original core activity.
We started thinking about a rebranding last year, especially when we started dealing with international investors. We understood that there was a confusion among investors, but also among other stakeholders – clients, partners, journalists, analysts – between MailUp, as one of our five business units, and the MailUp Group. MailUp Group was a very good name when we first created the group: most of our investors and clients were Italian and in Italy MailUp is a very strong brand, at least in the marketing community.
But when facing the international environment MailUp was confusing. I saw investors looking for a MailUp Group and starting from the mailup.com website. They thought that we were just MailUp, missing Datatrics, BEE and all the other businesses we have. That was something that we needed to fix, also considering that MailUp alone today accounts for about 25% of our revenue, so it is no longer representing alone our true identity.
In terms of aspirations, the name Growens comes from two words. The first is “growth”, because we want to allow our clients and investors to grow. Of course, we are very aligned with our investors, we are the main owners of the company so we really are aligning in terms of value creation. Growth is also intended in terms of product portfolio and technologies, something that is in our DNA, if you look at our history.
The second word is “-ens”, the Latin suffix for active action agency, which means that we want to be the enablers that allow people, clients, investors to grow.
The process in ongoing: at the Board of Directors meeting two days ago we proposed to change the name, but that decision needs to be approved by the General Shareholder Meeting on 22 April. Only after that you will see the new website with the Growens brand and all updated materials. Until then we are still MailUp Group.
MailUp struggled with growth last year with the COVID crisis. Do you think it will improve this year or is this business vulnerable to further lockdowns?
Yes, for sure. The COVID situation has changed also the MailUp strategy: before COVID-19 we were looking to mid-large clients, so going up market. The COVID situation for sure didn’t help in this process, because larger enterprises are putting large investments on hold. This is something that is happening not only in Italy, but also the Netherlands and in the US.
So we decided to refocus our strategy and positioning on small-medium sized companies. This repositioning of MailUp has already started and should help facing also these lockdown periods. We also have a strong investment plan. We decided to hire 20 more people and to focus our growth not only in the relatively new market of SMEs, but also to start an internationalization process, starting from Latin America where we already have a very strong joint venture, mainly in Argentina Mexico, Colombia, and Chile, and later looking to replicate the same scheme on new markets. We are working on a new partner program that will be the key element to start this process.
All these activities on the MailUp side are now managed by a new senior management that we hired last year: Davide Castioni (Sales Director) and Giuseppe Vadalà (Head of Customer Value Management). As I said earlier, the Head of Marketing is missing, but it’s something that we’re working on and will be hired pretty soon.
When do you expect Datatrics to achieve its breakeven point?
That’s something that I cannot share, because we don’t release any outlook yet. For sure, this year this will not happen.
What are the main strategic guidances for BEE’s development?
BEE today is the business unit where we see the highest potential, because the growth rate is huge and will be even higher considering the USD/EUR exchange rate. In terms of market positioning, BEE is a market leader on a global scale, in a very strong position.
We decided to invest more and more in the future. In particular, the investment will be on the Marketing & Sales side. As I mentioned, last month we hired the Head of Sales and the Head of Marketing: they are based in the US and have a very strong experience in this field. We expect very good results and also an investment plan for the future. That’s not something that can happen overnight, it will require a few months to be fully landed. But we have great expectations on that.
On the product side, the investment will be of course on R&D. We want to keep our platform ahead of competition and we are now investing to add more content types. As you know, BEE started as an email template editor, then we added, last year, the page editor for landing pages, and now we are adding more content types. Our clients are asking for that: since they have a software application that provides several digital content in several formats, they want to have the same user interface, the same tool to edit different content types, for example popups (little windows that appear on websites). That should also increase the average revenue per client.
The second line of investment is on the sales side of BEE Pro, the solution that we sell not to software companies but to final enterprises. We are gathering a lot of very good feedback from our clients. You might know that we have clients such as Netflix, Disney, McKinsey, Amazon, Decathlon, Novartis, Roche – very important clients that use our tool. The focus of the sales department in the future will be to release enterprise contracts for those large companies that nowadays maybe have tens of independent users. We will work on selling a full yearly contract that includes all users and more features, at a higher price.
What is the expected evolution of Agile Telecom in 2021?
The SMS business is not strategic for us. It’s very important because it’s a large part of our revenues and allows us to invest in the most innovative business units. So for Agile Telecom the focus is related to margins, not to growth. So we want the business unit to increase the marginality, but I also expect an increase in volumes, because as soon as lockdowns end, I will expect that the SMS traffic that we lost in this period (especially in the retail sector) will come back.
So I think that we will have a nice growth, subject to the end of the lockdown.
Which brings us to our next question. How does the third wave of COVID impact you and how do you see the recovery?
During the last weeks, the situation hasn’t changed much: it’s not the worst, but it’s not any better than last year. It’s pretty stable. It’s difficult to say when this will end.
The effective tax rate was higher this year. Can you comment on the drivers? And second, how are you structured for tax in your overseas subsidiaries?
Taxes are high in terms of profit and loss impact, but in reality we have used several previous accumulated tax credits. The amounts that we see in the profit and loss table do not correspond to real cashout.
This is more visible in the balance sheet, where we have lower tax credit. For the subsidiaries, we are using a foreign advisor, but at the moment the subsidiaries are not paying taxes because they have low margins, and we are taking a lot of the marginality from the Italian companies.
Micaela Cristina Capelli
Let me try and summarise: from a global point of view, the consolidated financial statements include the mere sum of the taxes which are paid, but actually EBT is not the revenue on which the imposition is applied.
Imposition is applied on the individual companies and every company has an individual situation that is totally in line with previous years. The increase you see this year within the consolidated financial statements is the mere effect of what Matteo was mentioning. We used up anticipated taxation that was already accounted for in the previous year.
What is the intention of article 14 of the bylaws (sell out and squeeze out right)? Was there a change to shareholders agreements?
Micaela Cristina Capelli
The intention behind the amendment and split into further articles of article 14 of the bylaws was to better respond to investor protection. Let me make a premise on this: AIM listed companies do not submit to the overall law protection for investors, which is provided by directives.
This implies that Italian corporate law regulates takeover bids and the thresholds with which takeovers may take place, prices, and overall investor protection, which is provided by directives and Italian corporate law.
AIM companies are subtracted to these laws and regulations, so they are asked to comply to this law and to provide the same investor protection on a totally voluntary basis, by inserting in their bylaws the same provisions we would usually have and find in the European directives and corporate law. So, on a totally voluntary basis, our aim was to be reflecting the corporate law which applies to the big guys, or companies listed on official markets, to provide the same level of protection to our investors.
You can rest assured that if anything happens on the markets in terms of tender offers or squeeze out or tender rights or sell out rights, our investors will have the same exact level of protection they would be allowed if the company was listed on NASDAQ or the STAR segment of the Italian Stock Exchange.
And of course this does not affect the shareholders agreements. They remain in place. The natural expiry for those agreements is currently expected in December 2021. We will let you know, as soon as we learn ourselves, what happens if those shareholders agreements are renewed or not.
We have two of the shareholders here, but of course this has to do with the stability of the ownership, doesn’t have to do with investor protection, which is enhanced by the set of provisions that we proposed in order to be better and better similar to listed companies on main markets.
Regarding the business in South America, how much do you expect it to contribute to sales and how much do you think this strategy can upgrade growth in this business line?
Micaela Cristina Capelli
I remind you that we cannot disclose the actual expected figures, but as we mentioned for Agile Telecom or BEE maybe you can give us some strategic guidelines?
In South America we rely on a joint venture partner that is working exclusively with us. This partner started from Argentina and built a strong organisation with over 20 full-time employees right now. After Argentina, where we got important clients, such as MetLife Insurance, Claro (the first mobile carrier in Latin America), the City of Buenos Aires, Boca Junior soccer team. After that they started with establishing also a new legal entity in Chile and in Colombia, where we now have some important clients, such as Walmart.
Now the founder of this joint venture has relocated to Mexico, where he is going to replicate the same strategy for all Central America, including the Caribbean islands. It’s important to say that this partner is working not only for MailUp, but also for Datatrics, pushing both solutions together. We already have important feedback from the market, for example, we got Xiaomi as a client (the major Chinese mobile manufacturer) that chose a combination of MailUp and Datatrics for its e-commerce.
Brazil is the largest economy in South America. For it, we are working to design a new partner program. We’ll then start to push it and to find partners in other regions.
Of course, the COVID situation is not helping, because traveling is almost impossible and the impact of the pandemic on a non-booming economy is even harsher than elsewhere. But we are preparing: we have the people, we have the partner program, we have the organization to support partners. So as soon as the emergency ends, I expect that this process will start.
What happens in 2021 in terms of current trading? After the end of the year, how is the business going?
We will release the Q1 sales report on April 12th, where we’ll share the sales results for Q1 2021 with a breakdown by business unit.
Micaela Cristina Capelli
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