MuM revises growth forecast upward — what slowdown?

Jul 22, 2019 | Hot Topics

PLMish earnings season starts today, as Germany’s Mensch und Maschine (MuM) reports how its own software and the Autodesk VAR businesses performed in the second quarter. We’ve already heard from Hexagon and SAP that China and greater Asia, respectively, dragged down Q2 but since MuM concentrates on European markets, this won’t directly affect it, but may affect its end-customers — let’s see, shall we?

MuM reported that Q2 revenue was €57 million, up 24% from last year. For the half-year, sales were €120 million, up 27% as reported and up 20% on an organic basis. You may recall that MuM increased its stake in SOFiSTiK to 51% late last year, which allows it to recognize that revenue in its financials. It appears that SoFiSTiK contributed around €7 million in revenue to the first half.

For the half-year, M+M Software reported revenue of €38 million, up 34%, while the VAR business contributed €83 million, up 24%. For comparison, Q1 saw total revenue up 30% as reported (up 23% organically), with M+M Software up 31% and the VAR business up 30%.

MuM’s earnings press releases always have a great comment by CEO Adi Drotleff, and this one is no exception. It says that Mr. Drotleff is “very happy with the business during the first half year: ‘Our ambitious 2019 targets – EBIT to grow +22-33% to EUR 24-26 mln, EPS +25-34% to 89-95 Cents, and 77-83 Cents dividend (PY: 65 / +18-28%) – are comfortably underlined by the strong H1. Instead of +10-15% we now expect +20-24% growth to EUR 220-230 mln for sales.’

Parset that? Mr. Drotleff said that he expects earlier sales forecasts to be more than doubled, with a rippling to the bottom line.

Digging a bit deeper: Mr. Drotleff bet that Autodesk’s switch to subscriptions would drastically change MuM’s business, and took steps to weather the transition. MuM built out its proprietary software lines — they’re both more profitable and under its total control. And it seems to be working: According to the company’s results presentation, in 2001, MuM saw 71% of its gross margin come from Autodesk-related sales; today that’s just 17%. Flip that, it means that 83% of MuM’s gross margin is under its sole control. And the higher the gross margin (which is revenue minus the cost of that revenue), the more cash the company has to grow. It’s definitely something a business wants as much control over asl possible.

Oh, and about Asia? MuM reports that 9% of revenue comes from Asia, all via its OpenMind CAM brand. Open Mind on its own now represents 40% of the group’s gross margin (or half of the non-Autodesk total). The company made no comment on any difficulty there.

What does it all mean? Things seems to be going well at MuM, the Autodesk business continues to grow briskly, though a bit slower than in Q1. But the standout remains the MuM Software line, growing at over 20% organically over last year.

Buckle in. Midweek we hear from PTC and Dassault Systèmes, then Schneider Electric updates us on AVEVA, too; Friday brings Nemetschek and Hexagon.