Schnitger Corporation

Quickie: MuM intends to double profit in 2016 even in subs transition

Quickie: MuM intends to double profit in 2016 even in subs transition

Jul 25, 2016 | Hot Topics

Germany’s Mensch und Maschine Software released earnings today, saying that the first half of 2016 succeeded in meeting its ambitious goals. Sales for the 6 month period were €88 million, up 8%, led by M+M Software which grew 12% to €23 million. The VAR business reported revenue of €65 million, up 6%. That’s for Q1 plus Q2; the Q2-only picture tells a different story: total revenue was €37 million, down 3% year/year, while M+M Software revenue was €12, up 8% and the VAR business reported revenue of just €15 million, down 67%.

In Q1, the VAR business benefitted from Autodesk’s promotions — lots of customers took advantage of their last chance to get a perpetual license for some of their seats. In Q2, the reality of subs hit, leading to the revenue decline.

It all comes down to cash: is MuM generating enough cash to keep comfortably in business? Yes. Operating cash flows were €7.41 million in the first half of 2016, roughly comparable to last year when factoring out the final installment payment the company received as part of its 2011 sale of the distribution business. In fact, CEO Adi Drotleff is confident in MuM’s ability to weather this change, “as EUR 1.9 million out of the EUR 3.2  million [EBITDA, earnings before interest, tax, depreciation and amortization] surplus planned for 2016 has already been achieved. Depending on … currency exchange effects and the actual tax rate, there is a wider tolerance regarding the target of doubling full year net profit after minority shares to nearly EUR 8 million (previous year: 3.87) and EPS to approx. 48 Cents (previous year: 24).” Yup. MuM intends to double net profit — because overall sales are shifting to towards its more profitable proprietary software business but also because it is making changes to increase the profitability of a subscription-selling VAR business.

It’s tough, this time, to extrapolate from MuM to Autodesk since the license model transition hides the overall demand picture, But we do see that a VAR can weather this transition — in MuM’s case, helped by growth in its proprietary software businesses.


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