30.07.2007 InVision Software AG
InVision Software AG
30.07.2007 Buy
Research Note
Price target:
EUR 40.0
The ideal time to get the show on the road
Price: Tech-All:
32.65 1091.79
InVision is a genuine pure play software provider for workforce management solutions (with royalties accounting for 57% of sales in 2006). The key strength of InVision’s solution lies in staffing
(initial coverage) Bloomberg: Reuters: ISIN Internet: Segment: Sector:
IVX GR IVXG.DE DE00585969 www.InVision.de Prime Standard Software
Tech-All (relativ)
InVision Software 35,5 35 34,5 34 33,5 33 32,5 32 31,5 31 30,5 06/07
07/07
Share data: Bloomberg
07/07
27.07.2007 / Closing price
High /Low 52 w: Market cap. No. of shares: Shareholders:
EUR 34.59 / 32.00 EUR 72.97 m 2.24 m Peter Bollenbeck Matthias Schroer Armand Zohari
17,00% 17,00% 17,00%
InVision Holding GmbH Free Float Calendar:
H1/2007 Figures Q3/07
6,29% 4,71% 14.08.2007 14.11.2007
Analysis: SES Research Publication: Felix Ellmann (Analyst)
30.07.2007 +49-(0)40 309537-12
Institutional Client Contact: M.M.Warburg & CO Barbara C. Effler (Head of Equities) Institutional Equity Sales Christian Alisch Thomas Dinges Matthias Fritsch Dr. James F. Jackson Oliver Jürgens Benjamin Kassen Marina Konzog Linn Lenné Dirk Rosenfelder Marco Schumann Andreas Wessel Sales Trading Oliver Merckel Thekla Struve Gudrun Bolsen Nils Carstens Jörg Treptow Patrick Schepelmann Sales Assistance Wiebke Möller
+49-(0)40 3282-2636 +49-(0)40 3282-2667 +49-(0)40 3282-2635 +49-(0)40 3282-2696 +49-(0)40 3282-2664 +49-(0)40 3282-2666 +49-(0)40 3282-2630 +49-(0)40 3282-2669 +49-(0)40 3282-2695 +49-(0)40 3282-2692 +49-(0)40 3282-2665 +49-(0)40 3282-2663 +49-(0)40 3282-2634 +49-(0)40 3282-2668 +49-(0)40 3282-2679 +49-(0)40 3282-2701 +49-(0)40 3282-2658 +49-(0)40 3282-2700 +49-(0)40 3282-2703
requirement forecasts and the subsequent flexible optimisation of staff deployment. The software tackles mathematical optimisation issues that are extremely difficult to solve. Product specifications of this nature clearly set InVision apart from the competition and explain the company’s strong growth. Over 180 clients, including top names such as Vodafone, Deutsche Telekom or IKEA are testimony to the high competitive quality of InVision’s solutions, which generally provide a return on investment within 6-12 months. InVision’s solutions allow its clients to: •
cut costs by reducing instances of excess cover,
•
boost productivity by reducing instances of insufficient cover,
•
increase employee satisfaction, for example by implementing flexible schedules that employees have a say in
Growth is driven primarily by: the replacement of proprietary systems; a strong client pipeline; the broadening of market access to cover additional areas; the expansion of the company’s sales activities and of the partner business; further internationalisation, taking the company onto the very dynamic international markets, and the planned strengthening of the company’s capital base as a growth catalyst. In financial year 2006, InVision reported growth of around 70% and an EBIT margin of 18% (EUR 1.95 m). This means that the company’s operating result was boosted by EUR 3.6 m as against the prior-year, when it still reported a loss. This highlights a key issue for pure play software providers: InVision has completed the main development work for its product and has a strong client basis that guarantees regular maintenance income. Further increases in sales will have a clearly above-average impact on the EBIT margin, with even this year’s figures expected to confirm this trend (extremely high scalability). As a result, we expect the EBIT margin to increase from 18.2% to 23.0% (EUR 4.15 m) in financial year 207, with sales growth of 68%. The figures for Q1/07 support this assumption.
On June 14, 2007, InVision was listed successfully at the stock exchange which will support further growth. The calculated valuation range for the share is EUR 38 to EUR 46. We initiate the coverage of InVision with the rating “BUY”. Our PT is EUR 40.
Fiscal year ending Sales Gross margin EBITDA EBITDA-margin
12/06
12/07e
12/08e
12/09e
6.4
10.7
18.0
25.6
32.1
92.2%
99.2%
99.0%
99.0%
99.0%
-1.5
2.0
4.3
7.2
9.6
-24.3%
18.9%
23.8%
28.0%
29.8%
-1.6
1.9
4.2
7.0
9.3
EBIT-margin
-25.6%
18.2%
23.0%
27.2%
29.0%
Net Income
-1.2
1.4
2.6
4.6
6.4
Operating Cash Flow
-0.6
0.61
1.19
2.08
2.87
EBIT
DPS Dividend Yield
0.00
0.00
0.00
0.00
0.00
0.0%
0.0%
0.0%
0.0%
0.0%
EV/Sales
8.09
4.81
2.86
2.02
1.61
EV/EBITDA
n.m.
25.46
12.02
7.22
5.40
EV/EBIT
n.m.
26.50
12.44
7.43
5.55
PER
n.m.
53.52
27.44
15.70
11.38
-877.2%
187.6%
28.9%
24.1%
26.8%
-2.1%
2.6%
8.2%
13.7%
18.3%
ROCE Adj. Free Cash Flow Yield
SES Research GmbH – A Member of the Warburg Group
12/05
Key figures per share in EUR, all other in m. EUR, Price: 32,65 EUR
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InVision Software AG Equity story
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Company background InVision AG was formed in 1995. The two members of the company’s current Executive Board are also the company’s founders. The company is a pure play software provider with income components that are typical for this sector: royalties (57%), maintenance (22%) and services (21%). Over the past few years, the company has demonstrated strong growth, and was able to report top-line growth of around 70% in 2006 following a year of consolidation in 2005. The EBIT margin climbed to just shy of 20%. As a product provider, InVision offers unique technology for the optimisation of corporate staff deployment. The core element of this technology is a complex solution that can automatically produce rotas with a high degree of optimisation using various optimisation procedures. The solutions are particularly valuable in sectors in which staff deployment optimisation on the basis of concrete requirements and demand forecasts is exceptionally important. As a result, InVision is active on a clear niche market that allows the company to generate high returns. A large number of top-name clients show that InVision is a leader on this niche market. Its clients include absolute blue chips such as Deutsche Telekom, Vodafone, IKEA or freenet. In addition to attracting new clients, the expansion of the company’s business with its existing clients alone offers enormous potential for InVision. InVision Fiscal year end
Sales change yoy
Gross Profit
2006
2007e
2008e
2009e
31.12.2006
31.12.2007
31.12.2008
31.12.2009
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
10,647
17,869
25,326
31,756
in % of Sales
99.2%
99.0%
99.0%
99.0%
EBITDA EBIT Net Income
2,029 1,949 1,374
4,296 4,151 2,648
7,155 6,950 4,643
9,559 9,302 6,407
Table 1; Source: SES Research
Competitive and business quality Personnel planning is a traditional field of activity in the IT sector. Since this market is generally divided and the growth rates are only moderate in the industrialised nations, the only companies that can report strong growth are those that offer substantially superior solutions for highly specific areas of application. This applies in InVision’s case. InVision specialises in a specific personnel planning segment, namely the (mathematical) optimisation of staff development. There is considerable cost-cutting potential in this area through the implementation of optimisation solutions. Clear evidence of this potential can be provided to competitors and potential clients, because the solution to the optimisation probSES Research GmbH – A Member of the Warburg Group
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lems is a mathematical one, meaning that is very easy to justify potential cost savings. Large users can generally expect a ROI within 6 to 12 months. InVision has a leading position on the European market in terms of its core competency: optimisation. It is unlikely that the company’s US competitors will gain a stronger foothold internationally and pose any real competitive threat to InVision in Europe, because they will be unable to build up comparable references in Europe in the short term, do not offer the multilingual service that is required within Europe and often lack fundamental, regional market knowledge. On the whole, we believe that there is a positive market trend in the workforce management sector. The “optimisation” segment is a sufficiently small niche on this market, which should allow InVision to gain market share and generate aboveaverage growth as a result. Optimisation offers considerable and, most importantly, measurable potential for many companies. We believe that more than 17 years of experience in the workforce management sector and an established, referenced solution that has allowed over 180 clients to generate a swift ROI are InVision’s main competitive strengths.
Sales and earnings growth Over the course of financial year 2006, InVision was able to demonstrate the massive earnings potential offered by the provision of pure play software for the first time. The company boosted its sales by 70% and drastically increased its net income for the year by more than EUR 2 m, taking it from a loss of EUR 1.25 m to a profit of EUR 1.37 m. The sales growth seen in the previous financial year and the strong first quarter will produce a base effect in the first instance. Thereafter, further top-line growth will be driven by:
SES Research GmbH – A Member of the Warburg Group
•
solid market growth in the call centre and workforce management sector
•
the replacement of proprietary systems, the majority of which only implement rudimentary optimisation measures
•
a strong client pipeline, so far, only few of the possible fields of business/projects have been exploited for the majority of the company’s clients.
•
large pipeline of new potential clients, for which InVision is participating in tenders or with which it is already running pilot projects
•
broadening of market access to cover additional areas outside of the call centre business, often in cooperation with existing major clients
•
expansion of sales activities and expansion of the partner business, which still offers considerable potential
•
further internationalisation, taking the company onto the highly dynamic international markets, which increased their contribution to consolidated sales to 51% last year (+210% growth) Page 3
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•
Newsflow
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the strengthening of the capital basis has the ability to act as a growth catalyst.
Earnings growth is determined primarily by the high scalability of income in the software licensing business. The following factors play a key role in explaining the bottom-line development: •
Reduction of key relative cost items (e.g. development, overheads, others). InVision’s product has already been developed. Further licence sales will now no longer be offset by development costs on a comparable scale to that seen in the past.
•
Expansion of the partner business and, as a result, the realisation of higher margins due to a relatively high proportion of royalties
•
Ongoing expansion of the installed base, and as a result, increase in maintenance income.
As a result, we have arrived at the following sales and earnings forecast: InVision - P&L 2006
2007e
2008e
2009e
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
6,103 2,347 2,283
10,387 3,549 4,113
15,093 5,145 5,343
18,279 7,214 6,584
Total Sales
10,733
18,049
25,581
32,077
Gross Profit
Sales Change yoy
- thereof licenses - thereof maintenance - thereof services
10,647
17,869
25,326
31,756
in % of Total Sales
99.2%
99.0%
99.0%
99.0%
EBIT
1,949
4,151
6,950
9,302
Net Income
1,374
2,648
4,643
6,407
Change yoy in % of Total Sales
n.m. 12.8%
92.7% 14.7%
75.3% 18.1%
38.0% 20.0%
Table 2; Source: SES Research
Valuation The calculated valuation range of between EUR 38 m and EUR 46 m is based on the following valuation methods (under consideration of capital inflow of IPO, post-money):
SES Research GmbH – A Member of the Warburg Group
•
The adjusted Free Cash Flow Yield for 2008e points towards a fair value of EUR 41 m with substantial upside potential in subsequent years (2009e: EUR 52,20 m)
•
The DCF model, based on a beta of 1.5, a risk-free rate of 4.09%, a WACC of 11.5% and a perpetual growth rate of 2% signals a value of EUR 38 m. Nevertheless, we expect
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the margin to drop in the long term and also predict a considerable slowdown in growth (market saturation). This valuation approach is supported by three peer groups (comparison on EV basis, the calculated fair values include net financial item: •
The comparison with listed German pure play software providers indicates an EV of EUR 40 m (2007 EV/EBIT)
•
The comparison with listed US competitors points towards an EV of EUR 42 m (2007 EV/EBIT)
•
The comparison with transaction multiplies for takeovers in the sector indicates an EV of EUR 46 m (2007 EV/EBIT).
Newsflow We expect InVision to report considerable sales growth and a clearly above-average increase in earnings this year. The fourth quarter, which is traditionally strong in this sector, should provide particular momentum. The most recent transactions executed by US peer companies have had a positive effect on the valuation. InVision should also continue to benefit from this. In the medium term, the company could even make a number of smaller acquisitions, which could also raise InVision’s profile.
SES Research GmbH – A Member of the Warburg Group
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ROI value drivers Increased operating performance • Fewer instances of insufficient coverage Æ More sales thanks to better service Reduction in operating costs • Fewer instances of excess coverage and surcharges Æ Lower personnel costs • Automation of workflows and calculations Æ Lower form and process costs • Integration of employees into planning process Æ Reduced recruitment and training costs Chart 1; Source: InVision
Client benefits Company management, operations, finance and management accounting
• Increased operating performance • Lower personnel costs der motivation Betriebskosten • Increased Reduzierung productivity and • Faster and better decisions • Lower administrative costs
Valuation
• More fairness Personnel department • Standard tasks automated to a considerable degree • Reduction of fluctuations IT department • Lower IT costs • Simple administration • Comprehensive expandability Chart 2; Source: InVision
Company & products
Ratios
IT in personnel planning Personnel planning is a traditional field of activity in the IT sector. Staff planning and time management (the recording, structuring and processing of personnel-relevant data) is already offered by a large number of companies (e.g. ATOSS). ERP software providers (e.g. SAP), providers of access control systems (e.g. Primion) or payroll system providers (e.g. P&I) also work in the segments of this market that are relevant to personnel planning, at least in part. Since this market is generally divided and the growth rates are now only moderate in the industrialised nations, the only companies that can report strong growth are those that have specialised in particular market segments and offer substantially superior solutions in these segments. This applies in InVision’s case. The InVision solution InVision specialises in a highly specific segment of personnel planning, namely the optimisation of personnel deployment in certain segments that fulfil the following two core requirements: •
Personnel requirements can be easily forecasted and, where appropriate, can be tracked via models (e.g. call centres)
•
Personal deployment is considerable, meaning that relatively minor optimisation successes can have a relatively large impact in terms of savings (large clients)
Employees • Better work/life balance • Interesting work
Newsflow
If these two requirements are met, the use of optimisation solutions can produce substantial cost-cutting potential. After all, while any switch from manual to IT-based personnel deployment optimisation (using solutions produced by the company’s competitors) could reduce costs in principle, InVision’s highly complex mathematical optimisation methods produce results that, according to information released by the company itself, outperform those offered by the competition. Where it is possible to plan and forecast personnel deployment as precisely as possible, InVision supplies the required methods and results. The subsequent optimisation of personnel deployment is generally greater than the sort of optimisation that the company’s competitors could offer. This means that there is considerable demand for InVision’s solutions, particularly among large clients. While these clients already optimise their personnel deployment, InVision allows them to further increase the extent of optimisation. The larger the systems, the higher the absolute cost savings as a result of relatively small optimisation measures. This is why there is particular demand for InVision’s solutions among large clients. InVision’s solutions allow clients to deploy personnel in an effective manner and, as a result, to achieve the following in particular: •
SES Research GmbH – A Member of the Warburg Group
To cut costs but reducing instances of excess cover,
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•
To boost productivity by reducing instances of insufficient cover,
•
To increase employee satisfaction, for example by implementing flexible schedules that employees have a say in, the “Infothek” (info centre) principle (employees can set, plan and exchange working hours themselves).
Users can generally achieve a ROI within 6 to 12 months. The solution also offers further key advantages such as the reduction of planning costs and increased employee flexibility (see box on the left). Although the high degree of specialisation clearly limits this field of business, it nevertheless explains why InVision is growing at a considerably faster rate than its competitors. References as a competitive advantage In the software sector, references are a key competitive advantage. They underline the quality of the solution and justify its cost-effectiveness. This is explained using a few projects as examples: InVision - reference projects Royal Automobile Club
ABN AMRO
- Royal Automobile Club, UK - More than 4,500 employees - 24-hour service for over 6 m members 6 InVision solution - Deployment optimisation in the following areas: road-side assistance, breakdown assistance & call centre Client benefit
- 16% increase in operating performance, corresponds to annual savings of GBP 1.3 m Coverage of 56 planning rules, - thereof 32 fairness guidelines Planning input reduced by90%
Chart 3; Source SES Research
Freenet customer care AG
- Financial services provider, NL - More than 110,000 employees worldwide
- Internet and telecommunications providerm Germany - Over 1 m broadband clients
- Deployment optimisation and analysis and monitoring for approx. 1,200 employes in 5 service centres
- Deployment optimisation, time management and employee integration for more than 1,000 service centre employees
- Personnel costs cut by7.5% Planning input reduced by over - 50%
- The extent to which employee wishes are fulfilled (i.e. employees can choose their own working hours) averages between 70% and 85% - Fewer employees call in sick due to unwanted working hours - Less fluctuation
InVision has a total of more than 180 clients in 19 countries. The following table provides an overview of references (excerpt):
Invision’s clients (excerpt) Banks • Postbank • Sparda-Bank • RBS • ABN AMRO • ...
Insurance companies • AXA • Allianz • AOK • ...
Telecommunications • Deutsche Telekom • Vodafone • Swisscom • ...
Energy • Eon • Vattenfall • RheinEnergie • EnBW • ...
Other • BMW • IKEA • NORDSEE • ...
Chart 4; Source: InVision AG SES Research GmbH – A Member of the Warburg Group
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National and international dimension of competition We believe that InVision has a leading position in Europe in terms of its core competency of “Planning/Optimisation”. In the other areas of personnel deployment planning and time management, the company’s major European competitors (e.g. Interflex, Torexretail or IGSUS) certainly have solutions that could be superior to InVision’s in part. Nevertheless, when it comes to projects dealing with a very high level of optimisation, the solutions offered by the company’s European competitors appear less focused than InVision’s. As a result, we believe that InVision can continue to grow in Europe despite intense competition on the staff planning and time management markets. On the international stage, however, there are several larger competitors that also offer optimisation solutions with performance that is more comparable to InVision’s. On the call centre market, the company’s main competitors include the following providers: InVision's international competitors - call centre Aspect Software
NICE Systems (IEX)
Witness Systems
Genesys
Registered office
Chelmsford, MA (USA)
Ra'anana (Israel)
Roswell, GA (USA)
Daly City, CA (USA)
Sales
USD 610 m (2006)
USD 414 m (2006)
USD 222 m (2006)
n/v
Employees
2.100
1.416
834
4.000
Internationality
global
global
global
global
Core business
Call centre software
Call centre software/ security
Workforce optimisation software
Call centre software
Chart 5; Source SES Research
In the overarching human capital management (HCM) sector, InVision’s main competitors include the following: InVision's international competitors - HCM Kronos
Torex Retail
Workbrain
RedPrairie (BlueCube)
Registered office
Chelmsford, MA (USA)
Oxfordshire (UK)
Toronto, Kanada
Waukesha, WI (USA)
Sales
USD 578 m (2006)
GBP 191 m (2006)
USD 96 m (2006)
n/v
Employees
2.500
2.285
650
approx. 600
Internationality
USA, UK, Asia, South America
UK, Europe, USA
USA, UK, Australia
USA, UK, (Europe)
Core business
WFM solutions
Sector solution, commerce WFM solutions
Supply chain management
Chart 6; Source SES Research
Some of these competitors are in a position to compete with InVision, in technical terms, in the planning/optimisation sector, too. This acts as a stumbling block to growth in the US. We believe, however, that InVision’s main growth potential lies in Germany, as well as in other European countries. It would appear unlikely that these competitors will gain a stronger foothold internationally and pose any real competitive SES Research GmbH – A Member of the Warburg Group
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threat to InVision in Europe. This is because the company’s international competitors are flawed by typical weaknesses: •
They do not have any comparable references in Europe,
•
They do not offer any comparable multilingual services, which are required on the European market,
•
The complex and highly diverse employment law situation in Europe is often underestimated and
•
The US competitors often lack fundamental understanding of the differences in European working practices, remuneration, etc.
As a result, we believe that US competitors only pose a very limited threat. All in all, we therefore believe that InVision is well focused and that its chosen specialisation makes sense in a comparison with its competitors. Optimisation niche market as a selling point and growth driver We believe that there is a positive market trend in the workforce management sector on the whole. “Optimisation” is a sufficiently small niche in this sector, which should allow InVision to continue to gain market share and, as a result, generate above-average growth. Optimisation offers considerable and, most importantly, measurable potential for many companies. We believe that InVision’s key strength in the competitive environment lies in its 17 years of experience in the workforce management sector and an established, referenced solution that has allowed over 180 clients to generate a swift ROI.
SES Research GmbH – A Member of the Warburg Group
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Recent performance In financial year 2006, InVision boosted its sales by 70% and drastically increased its earnings, which rose by more than EUR 2 m from EUR –1.25 m to EUR 1.37 m. This trend continued in Q1. InVision - Q1/2007 Q1/07
Q1/06
change yoy
2007e
2006
change yoy
Sales
2,645
1,360
94.4%
18,049
10,733
68.2%
Total Sales
2,645
1,360
94.4%
18,049
10,733
68.2%
Gross Profit
2,614
1,331
96.5%
17,869
10,647
67.8%
in % of Total Sales
98.8%
97.8%
99.0%
99.2%
4,151
1,949
23.0%
18.2%
2,648
1,374
14.7%
12.8%
EBIT in % of Total Sales
-289
-846
-10.9%
-62.2%
Net Income
-122
-958
in % of Total Sales
-4.6%
-70.4%
65.91%
87.2%
113.0%
92.7%
Table 3; Source: SES Research
Compared to the previous year sales almost doubled in Q1, while earnings increased by EUR 0.6 m from EUR-0.9 m to EUR-0.3 m. The fact that earnings remained in the red is normal for the sector. Q2 and Q4 are normally the strong quarters for licence-driven business models. We expect InVision to generate just under 60% of its income in the fourth quarter alone. Although the first quarter is generally of limited informational value for the year as a whole, two key points are worth noting. Sales doubled year-on-year. The assumption that this trend will continue is explained below. We expect to see sales increase by 68% in this financial year. Earnings improved by EUR 0.6 m year-on-year. If we extrapolate this improvement, our forecast of a EUR 2.2 m increase in earnings in 2007 appears absolutely justified and borders on the conservative. If we assume further, realistic economies of scale in the course of the year, our forecast would appear to be too low. In the first two quarters, preparations for the raising of capital had a negative impact on earnings. This measure is expected to start bearing fruit in the second half of the year. On the whole, we believe that the first quarter supports our earnings forecast.
SES Research GmbH – A Member of the Warburg Group
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Growth in sales Any assessment of sales growth must first of all differentiate between the three types of sales: Licence sales (one-off licence fee for unlimited use, in terms of both location and timeframe) lie at the core of any software company and should increase further in line with successful sales activities. Existing client relationships act as a catalyst in this respect (subsequent licences and expansion of sales to cover other business areas of major clients). Service sales form the basis for the licensing business, because each project has a set service requirement (mainly implementation and training). The fact that the company’s services are performed by its own employees means that these sales are not as scalable as the licence sales. The latter can also be boosted by strong partner business, as well as by subsequent or new licences. Maintenance sales result directly from the licences sold (installed base). They amount to 15% of the respective installed basis per year, depending on the licence amount. Top-line growth will be supported by: •
solid market growth
•
the replacement of proprietary systems
•
strong client pipeline
•
broadening of market access
•
expansion of sales activities and expansion of the partner business
•
internationalisation
•
possible strengthening of the capital base as a growth catalyst
InVision - Sales per brand
Sales Change yoy
2006
2007e
2008e
2009e
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
Licenses
6.103
10.387
15.093
18.279
Change yoy
121,0%
70,2%
45,3%
21,1%
in % of Sales
56,9%
57,5%
59,0%
57,0%
Maintenance
7.214
2.347
3.549
5.145
Change yoy
6,2%
51,2%
45,0%
40,2%
in % of Sales
21,9%
19,7%
20,1%
22,5%
6.584
Services
2.283
4.113
5.343
Change yoy
61,4%
80,2%
29,9%
23,2%
in % of Sales
21,3%
22,8%
20,9%
20,5%
Table 4; Source: SES Research
SES Research GmbH – A Member of the Warburg Group
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Solid market growth In principle, the market for human capital management systems is believed to offer high growth potential. According to AMR, the global market is expected to grow by 10% a year, reaching a volume of USD 8.7 bn in 2010. In the call centre systems sector, workforce management systems are standard. In addition to the growth of the call centre market, growth is expected to come from system professionalization, as many companies are still using outdated technology for optimisation purposes (e.g. EXCEL files). Datamonitor expects the “Workforce Optimisation Technology” market to display annual growth of 12.1%, reaching a volume of USD 1.4 bn in 2009. The workforce management subsegment is expected to chart annual growth of 10.1% and account for USD 366 m in 2009. Frost & Sullivan expects market growth in the segment for workforce management solutions for call centres totalling 13.7% annually and reaching USD 433 m in 2010. The firm expects the EMEA market share to increase to 30% of the global market, producing a significantly higher growth rate of 20.5% p.a. on this particular market. This is due to the fact that the market for solutions of this nature has yet to undergo liberalisation in Europe. InVision's main comparable competitors originate from the US, and we believe that the company occupies a unique position in Europe. InVision is considerably outperforming the market in terms of growth. Over the past few years, the company has grown by around 30% p.a. Last year, sales grew by as much as almost 70%. Similarly, in addition to base effects due to InVision’s small size, there are a number of key growth drivers that have fostered, and will continue to foster substantial growth at InVision: Replacement of proprietary systems Particularly in Europe, the workforce management market is characterised to a considerable degree by proprietary or very straightforward systems. Often, smaller call centres still perform manual optimisation. Furthermore, optimisation is still seen as being less important than advanced time management and personnel planning systems. This means that there is still considerable potential for optimisation using professional solutions as far as the replacement of sub-optimum systems is concerned. This market structure, which is advantageous for InVision, represents a key growth driver which, in our view, is actually more important to the company than market growth itself. This is because InVision’s systems are usually employed during a later investment cycle, namely when the company in question has already set up the infrastructure, when the latter is up and running, and when the company starts asking questions with respect to improved optimisation.
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Strong client pipeline As mentioned above, InVision has over 180 clients. Follow-up business is a key pillar of InVision’s business model. This is highlighted in the following examples: InVision's reference clients Deutsche Telekom (T-Mobile)
Mannesmann Mobilfunk
The German mobile telephony provider uses an InVision solution for 1,500 call centre employees Follow-up business
- New areas: T-Com VC, T-Com TK - Upgrades to release 4 ar T-Mobile, T-Com - International group subsidiaries: T-Mobile AT, HT Telecom, Htmobile
-
IKEA
The German mobile telephony provider uses an InVision solution for 2,500 call centre employees
IKEA Germany uses an InVision solution for 100 call centre employees.
Follow-up business
Follow-up business
with international group subsidiaries and equity interests Vodafone Omnitel (Italy) SFR/Cegetel (France) Swisscom Mobile (Switzerland) Safaricom (Kenya)
- Domestic group subsidiaries: Vivento Customer Services - Expansion of area of application: back office - Functional expansion: Capacitor, TrainingPlanner - Client-specific developments: SAP integration, data warehouse interface, among others - Increase in benefits due to various subsequent user licence purchases
-
IKEA International 50,000+ employees 100+ home furnishings stores in 11 countries Various international call centres
- Various international logistics centres - Functional scope: requirement forecasting, deployment optimisation, time management and analysis and monitoring
Chart 7; Source: InVision
These projects show how much potential still lies in InVision’s client base. The company should be able to exploit this potential at a relatively low marketing cost. In this respect, one factor that is particularly important is that InVision has been focusing on large clients for several years now and is expending the business areas with these clients from merely call centres, to cover other areas with similar requirements. This is particularly relevant with respect to a client like IKEA. This issue will be examined in further detail in the next section. Broadening of market access Share of call centre projects in total sales in % 100 90 80 70 60 50 40 30 20
In principle, workforce management solutions can be employed in a whole range of sectors and business areas, provided that the necessary conditions for planning and optimisation (see above) are met. Although InVision has its roots in the call centre market, the relative proportion of sales attributable to this segment has fallen over the past few years (although the proportion is on the rise in absolute terms). This shows that the solution can obviously also work well in sectors outside of the call centre industry. The chart below shows the areas which could act as potential business areas for InVision (the areas in boxes have been localised as target markets):
10 0 2004
2005
Call Center Projekte
2006
2007e
Andere Projekte
Chart 8; Source: InVision
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Business model Area of application Call centres
Back office
Sales organisation
Logistics
Production
External sales
Financial services providers
Telecommunications
Sector
Supply & waste management
Wholesale & retail
Transport & logistics
Other Sales focus “call centres“ and “back office”
Ideal conditions for deployment optimisation Chart 9; Source: InVision
Sales focus Sales focus “transport “retail” & logistics”
Good conditions for deployment optimisation
We believe that the expansion of market access also constitutes a key top-line growth driver. In the first instance, this relates to the commerce, transport and logistics. Expansion of sales activities and the partner business One key factor for pure play software providers is whether or not they can manage to focus on licence sales without having to provide the associated, low-margin services themselves, meaning that they can focus on further developing their solutions. Implementation partners that can perform this work within the framework of the company’s projects are merely supplied with software licences, which is very attractive for InVision from a margin point of view. At present, the company works with the following partners:
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Implementation partners Type of resources
Deployment regions
•
Application consultants
FR, IT, NL, NO, SE, ES,
•
Software developers
•
Application consultants
•
IT consultants
PL, RU, UK, US UK, FR, MA
FR, DE, PL •
Application consultants
•
Application consultants
•
Application consultants
•
Application consultants
IT
South America
Chart 10; Source: InVision
These partners are involved in InVision’s projects, which explains the high contribution made by licence sales and the relatively low service sales. InVision has already stated that expanding its partner business is one of its objectives, because at present, its partners still do not generate their own leads (client acquisitions) and InVision does not pursue any active partner management policy. This offers considerable potential. This issue is to be tackled and should result in additional sales growth, along with aboveaverage margins.
Sales by region
Internationalisation
in million EUR 12 10 8 6 4 2
DACH
2006
2005
2004
0
ROW
Chart 11; Source: InVision
The reorientation of the company’s sales activities in 2004/05 to focus on major international clients, company-wide workforce management and management restructuring (account managers were entrusted with managerial duties) reduced the company’s sales activities in the Germany/Austria/Switzerland (GAS) region (decline in sales in 2005: –12%). The strategic shift, as well as the establishment of increased sales capacity considerably boosted sales in 2006, particularly abroad. In the GAS region, sales grew by 12%, while they increased by 210% in the rest of the world (ROW). Foreign markets (ROW) now account for 51% of consolidated sales. The fact that the market momentum for the company’s foreign business is far higher than in Germany and that the contribution made to total sales already stands at above 50% following spectacular growth rates shows the enormous potential that internationalisation offers for top-line growth.
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Possible strengthening of the capital base as a growth catalyst We believe that the strengthening of InVision’s capital base should have an above-average impact on the company’s success: •
The technology is developed and established, any moves to step up the company’s sales activities should have a very clear impact on earnings (scaling). To put things simply: once the technology has been developed, each additional licence sold = profit.
•
The same applies to the rapid adaptation of the product to suit other segments. Here, too, the company can enter into new fields of activity at a low adaptation cost and the situation set out above applies by means of analogy.
•
In the medium term, we could also see the company acquiring implementation competence. This would also produce considerable up-selling potential.
•
The improvement of the company’s balance sheet quality is also advantageous in terms of its external image.
Strong sales growth justified The factors set out above highlight the fact that InVision should be able to display strong sales growth in the future.
Earnings growth With average annual top-line growth for the period 2006-2009 of 44%, we expect to see an above-average increase in the operating result. The above-average nature of this increase is due, in our view, to the company’s licence-driven business model. The following factors largely explain the bottom-line development:
SES Research GmbH – A Member of the Warburg Group
•
Below-average development in key cost positions (e.g. development, overheads, other), i.e. these fall in relation to sales
•
The expansion of the partner business and the associated increase in margins due to a higher proportion of licence sales in relative terms
•
The ongoing expansion of the installed base and, as a result, of the high-margin recurring maintenance income
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Below-average increase in cost items vis-à-vis sales Personnel expenses and other operating expenses are by far InVision’s main cost items. This means that both of these items have the greatest impact on the bottom line. Personnel expenses Personnel expenses
Personnel expenses have increased considerably over the past few years. In the restructuring year, 2005, which saw key structural changes within the company (see above) the ratio increased considerably. In 2006, personnel expenses returned to a normal ratio of 53% and are expected to decrease further (2009e: 44%).
in million EUR, as a % of sales 80,0%
14 12
70,0%
10 8
60,0%
6
50,0%
4
51% of personnel expenses are attributable to development, 26% to services, 16% to sales and 7% to other areas. The high development expense, in particular, is expected to fall in relation to sales. The proportion of expenses relating to services is likely to remain constant on the back of a steady project flow. The fact that the only 16% of the company’s personnel expenses are attributable to sales, and that it is nevertheless reporting strong growth, shows just how much potential is offered by the expansion of this area. We therefore expect sales and marketing costs to increase slightly in relation to sales, which means a considerable increase in absolute terms.
40,0%
2 2009e
2008e
2007e
2006
2005
30,0% 2004
0
Chart 12; Source: InVision
Other operating expenses
The personnel expense ratio on the whole, however, is likely to fall due to the expectations of high top-line growth.
in million EUR, as a % of sales 10
50,0%
8
Other operating expenses
40,0%
6 4
Other operating expenses consist primarily of rental, marketing, travel and vehicle costs. In this case, too, we expect to see a decline in costs in relation to sales.
30,0%
2
2009e
2008e
2007e
2006
2005
20,0% 2004
0
Chart 13; Source: InVision
Both cost items are impacted by a key effect. It is estimated that InVision can already generate around 50% of its business with its existing clients. Only 20% of the company’s sales potential has been exploited for 80% of its clients (estimates). Expansion of the partner business
Maintenance fees in million EUR, as a % of sales
2
20,0%
0
10,0% 2009e
30,0%
2008e
4
2007e
40,0%
2006
6
2005
50,0%
2004
8
Chart 14; Source: InVision
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The section above (top line growth) mentioned that the partner business should have a positive impact on sales. The impact on earnings, however, is much greater. This is because a functional partner business means: •
Lead generation by the partner (hardly any sales expense for InVision)
•
Services provided by the partner (no personnel expenses relating to services for InVision)
•
Considerable increase in royalties, which has a direct impact on earnings.
At present, only 30-45% of projects are implemented with the help of partners, which still do not generate leads. The improvement of its partner business is one of InVision’s strategic Page 17
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objectives. We believe that this strategy offers considerable earnings potential (this has not yet been explicitly accounted for in our pre-money scenario). Ongoing expansion of the installed base and, as a result, maintenance income
EBIT in million EUR, as a % of sales 12,00
30,0%
10,00
20,0%
8,00 10,0%
6,00 4,00
0,0%
2,00
-10,0% 2009e
2008e
-4,00
2007e
2006
2005
-2,00
2004
0,00 -20,0% -30,0%
Chart 15; Source: InVision
SES Research GmbH – A Member of the Warburg Group
Maintenance income continues to rise at InVision. In the first instance, this income charts slower growth than licence sales, because it follows the latter. 15% of the installed base/licences can be booked as annual maintenance income. We believe that in as early as 2009, maintenance income alone will cover the company’s development costs in full. In principle, the installed base can be seen as a hidden reserve at software companies. Earnings situation In financial year 2006, InVision was able to demonstrate the massive earnings potential offered by a pure play software provider for the first time. The company boosted its sales by 70% and drastically increased its earnings, which rose by more than EUR 2 m from EUR-1.25 m to EUR 1.37m. According to our estimates and on the basis of these factors, the earnings situation is as follows:
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InVision - P&L Sales Change yoy
- thereof licenses - thereof maintenance - thereof services Changes in Inventory / Other Total Sales Change yoy
Material Expenses Change yoy in % of Total Sales
Gross Profit in % of Total Sales
2006
2007e
2008e
2009e
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
6,103 2,347 2,283
10,387 3,549 4,113
15,093 5,145 5,343
18,279 7,214 6,584
0
0
0
0
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
86
180
256
321
-82.8% 0.8%
110.7% 1.0%
41.7% 1.0%
25.4% 1.0%
10,647
17,869
25,326
31,756
99.2%
99.0%
99.0%
99.0%
Other Operating Income
138.5
361.0
511.6
641.5
Change yoy in % of Total Sales
-59.9% 1.3%
160.6% 2.0%
41.7% 2.0%
25.4% 2.0%
Personnel Expenses
5,742
8,700
11,519
14,178
15.3% 53.5%
51.5% 48.2%
32.4% 45.0%
23.1% 44.2%
Change yoy in % of Total Sales
Depreciation Change yoy in % of Total Sales
Other Operating Expenses
80
144
205
257
-3.1% 0.7%
80.2% 0.8%
41.7% 0.8%
25.4% 0.8%
3,014
5,234
7,163
8,661
Change yoy in % of Total Sales
7.6% 28.1%
73.7% 29.0%
36.8% 28.0%
20.9% 27.0%
EBIT
1,949
4,151
6,950
9,302
Change yoy in % of Total Sales
n.m. 18.2%
113.0% 23.0%
67.4% 27.2%
33.8% 29.0%
Financial Result
-68
-620
-760
-760
EBT
1,881
3,531
6,190
8,542
Change yoy in % of Total Sales
n.m. 17.5%
87.7% 19.6%
75.3% 24.2%
38.0% 26.6%
454 24.1%
883 25.0%
1,548 25.0%
2,136 25.0%
Net Income
1,374
2,648
4,643
6,407
Change yoy in % of Total Sales
n.m. 12.8%
92.7% 14.7%
75.3% 18.1%
38.0% 20.0%
Taxes Tax Rate
Table 5; Source: SES Research
The balance sheet InVision’s balance sheet (Q1/2007) can be explained quickly and briefly. Its assets consist more or less exclusively of receivables (trade receivables, 60% of total assets) and deferred tax assets (30% of total assets). InVision has not
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capitalised its own software, which produces a massive hidden reserve. 90% of the liabilities side of the balance sheet comprises current liabilities. The majority of these liabilities are deferred charges and prepaid expenses (maintenance) and trade payables. Equity is low at only EUR 174,000 and the current liabilities to banks of EUR 0.8 m considerably exceed the company’s cash and cash equivalents. At present, this means that the balance sheet is in a critical state and it would certainly make sense for the company to raise further capital. We believe that this is the mark left by the high growth that InVision generated in 2006. Furthermore, InVision has spent a lot of capital on software development over the past few years. A certain amount of debt financing has proven to have made sense from a strategic point of view and is bound to have been more valuable to InVision than the superficial appearance of its balance sheet. On June 14, 2007 InVision was listed successfully at the stock exchange. The InVision share is allocated at EUR 32.00. The 1.077.000 InVision shares were placed successfully. Including greenshoe the issue volume was EUR 34.5 m. The company accrued gros roughly EUR 22.9 m. Thus, the company is absolutely adequate capitalised and the mentioned weakness is eliminated. Balance sheet InVision Balance sheet (in EUR m)
2005
2006
2007e
2008e
2009e
Long-Term Assets
0.1
0.1
0.2
0.2
0.2
Current Assets
2.3
5.6
30.0
35.3
42.5
Total Assets
2.4
5.7
30.1
35.5
42.7
-1.1
0.2
24.0
28.6
35.0
Minority Interest
0.0
0.0
0.0
0.0
0.0
Provisions
0.4
1.3
1.5
1.8
2.2
Total Liabilities
3.5
5.5
6.2
6.9
7.7
Total Liabilites and Shareholders' Equity
2.4
5.7
30.1
35.5
42.7
ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY Total Equity
Table 6; Sources: InVision (reported data), SES Research (estimates)
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Balance sheet InVision Balance sheet (in % of Balance Sheet Total)
2005
2006
2007e
2008e
2009e
ASSETS Long-Term Assets
6.2%
2.5%
0.5%
0.5%
0.5%
93.8%
97.5%
99.5%
99.5%
99.5%
100.0%
100.0%
100.0%
100.0%
100.0%
-46.8%
4.2%
79.5%
80.5%
82.0%
0.0%
0.2%
0.0%
0.0%
0.0%
15.5%
22.2%
5.0%
5.1%
5.1%
Current Assets Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Total Equity Minority Interest Provisions Total Liabilities
146.8%
95.7%
20.4%
19.4%
18.0%
Total Liabilites and Shareholders' Equity
100.0%
100.0%
100.0%
100.0%
100.0%
Table 6; Sources: InVision (reported data), SES Research (estimates)
The cash flow statement Our basic scenario assumes that additional working capital will be required to generate further growth. The expected cash flow shows that it would make sense for the company to raise additional capital (as set out above)
Statement of Cash Flows InVision Statement of Cash Flows (in EUR m)
2005
2006
2007e
2008e
2009e
Cash Flow
-1.7
1.9
3.0
5.2
7.0
Cash Flow from Operating Activities
-0.3
-0.3
1.0
3.0
5.2
Cash Flow from Investing Activities
-0.1
-0.1
-0.2
-0.2
-0.3
Cash Flow from Financing Activities
0.4
0.4
21.1
0.0
0.0
Net Changes of Cash and Cash Equivalents
0.0
0.0
21.9
2.8
4.9
Cash and Cash Equivalents, end of period
0.1
0.1
22.0
24.8
29.7
Table 7; Sources: InVision (reported data), SES Research (estimates)
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Valuation range The range of EUR 38 m to EUR 46 m is based on the following valuation methods (under consideration of capital inflow of IPO, post-money): •
The adjusted free cash flow yield 2008e points towards a fair value of EUR 41 m with substantial upside potential in subsequent years (2009e: EUR 52.20 m)
•
The DCF model, based on a beta of 1.5, a risk-free rate of 4.09%, WACC of 11.5% and a perpetual growth rate of 2%, points towards a value of EUR 38 m. Here, however, we expect to see a drop in the margin in the long term and a very substantial growth slowdown (market saturation).
The valuation approach is underlined by three peer groups (comparisons based on EV, the calculated fair values include net financial items): •
The comparison with German pure play software providers points towards an EV of EUR 40 m (2007 EV/EBIT)
•
The comparison with US competitors suggests an EV of EUR 42 m (2007 EV/EBIT)
•
The comparison with transaction multiples for takeovers in the sector indicates an EV of EUR 46 m (2007 EV/EBIT)
We believe that a post-money valuation of EUR 40 m is appropriate for InVision, because this valuation takes account of the fact that earnings visibility remains low at present.
Free cash flow yield Our adjusted free cash flow yield is based on the assumption that investors buy an asset (in this case, the enterprise value) at a price that means that the free cash flow return (free cash flow = net income for the year + depreciation and amortisation - maintenance capex + taxes - (1-t) interest) on the EV exceeds the opportunity costs. In order to simplify matters, we have based our assumptions on a value of 10%. In as early as the current 2007 financial year, the adjusted free cash flow doubles due to the dynamic top-line and aboveaverage bottom-line growth. For 2008e, this corresponds to a fair value of EUR 70 m, and a value of EUR 93 m for 2009e.
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Free Cash Flow Yield 2005
2006
2007e
2008e
2009e
2010e
-1,241.1 83.0 -19.0 -409.7 23.1 0.0
1,374.3 80.0 -67.7 454.0 32.9 0.0
2,648.5 144.4 -620.0 882.8 53.9 0.0
4,642.9 204.7 -760.0 1,547.6 81.9 0.0
6,406.7 256.6 -760.0 2,135.6 102.7 0.0
7,625.6 282.9 -760.0 2,541.9 113.2 0.0
-1,571.8
1,943.1
4,241.8
7,073.3
9,456.2
11,097.3
-2.1% 10.0%
2.6% 10.0%
8.2% 10.0%
13.7% 10.0%
18.3% 10.0%
21.5% 10.0%
= Actual Enterprise Value
73,337.8
73,709.8
51,651.8
51,651.8
51,651.8
51,651.8
= Fair Enterprise Value
-15,718.2
19,431.4
42,418.0
70,732.5
94,561.9
110,972.6
365.0 0.0 0.0
737.0 0.0 0.0
-21,321.0 0.0 0.0
-21,321.0 0.0 0.0
-21,321.0 0.0 0.0
-21,321.0 0.0 0.0
-16,083.2
18,694.4
63,739.0
92,053.5
115,882.9
132,293.6
+ + +/-
Net Income Depreciation + Amortisation Net Interest Income Taxes Maintenance Capex Others
= Adjusted Free Cash Flow Adjusted Free Cash Flow Yield Fair Free Cash Flow Yield
- Net Debt (Cash) - Pension Liabilities - Off Balance Sheet = Fair Market Capitalisation Table 8; Source: SES Research
DCF model In order to calculate a value for InVision on the basis of the expected medium to long-term business success, we have applied a DCF model. In the years leading up to 2009, we expect further sales growth at a high level, in particular in 2007. Due to the extremely high scalability of the business, we expect to see a considerable increase in earnings, because the main development work on the software has already been performed. It is possible for InVision to expand into further areas of activity and the company has already started to do so. Sales and, in particular, earnings growth will be supported by the further expansion of the partner business and ongoing growth in maintenance income, which we estimate will cover the company’s development costs in full by as early as 2009. It is particularly worth mentioning that InVision already has an extremely renowned client base and that the potential has not yet been anywhere near exploited for individual clients. We expect sales to increase by 42% a year in the period leading up to 2009, with the EBIT margin likely to increase from 18% to 29%. From 2011 onwards, we expect sales growth to decline considerably to 5% and also expect the EBIT margin to gradually fall to 20%. This assumption is designed to take account of the fact that no long-term forecast can be made for the dynamic markets for software solutions. We have assumed a perpetual growth rate of 2%.
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DCF Model 2007e Sales Change
EBIT
2008e
2009e
2010e
2011e
2012e
2013e
2014e
2015e
2016e
2017e
2018e
2019e
2020e
18.0
25.6
32.1
35.4
37.1
39.0
40.9
43.0
45.1
47.4
49.8
52.2
54.9
57.6
68.2%
41.7%
25.4%
10.2%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
4.2
7.0
9.3
10.9
10.4
10.9
11.5
12.0
9.0
9.5
10.0
10.4
11.0
11.5
EBIT-Margin
23.0%
27.2%
29.0%
30.9%
28.0%
28.0%
28.0%
28.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
Tax rate
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
0.1
0.2
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.3
0.3
0.3
0.8%
0.8%
0.8%
0.8%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
Depreciation in % of Sales
Change in Liquidity from - Working Capital - Capex
-2.0 -0.2
-2.1 -0.2
-1.8 -0.3
-0.9 -0.3
2.6 -0.2
-0.4 -0.2
-0.4 -0.2
-0.4 -0.2
-0.4 -0.2
-0.5 -0.2
-0.5 -0.2
-0.5 -0.3
-0.5 -0.3
-0.5 -0.3
0.9%
0.9%
0.9%
0.9%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
Other
0.0
0.0
0.0
0.0
-1.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Free Cash Flow
1.0
3.1
5.1
7.2
9.4
7.8
8.2
8.6
6.3
6.7
7.0
7.3
7.7
8.1
2.75%
Capex in % of Sales
(WACC-Model)
Valuation (EUR mln)
Model parameter 43.8
Debt ratio
Terminal Value
20.0
Costs of Debt
n.a.
Liabilities
-0.9
Market return
Liquidity
22.2
Risk free rate
Equity Value
85.1 Beta WACC Terminal Growth
Terminal Growth
Sensitivity Value per Share (EUR)
Present values 2020e
0.00%
WACC
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
12.46%
34.78
34.93
35.09
35.26
35.44
35.62
35.82
9.00%
11.96%
36.05
36.23
36.41
36.61
36.81
37.03
37.26
4.09%
11.71%
36.73
36.92
37.12
37.33
37.56
37.79
38.04
11.46%
37.44
37.65
37.87
38.10
38.34
38.59
38.87
1.50
11.21%
38.19
38.41
38.65
38.90
39.16
39.44
39.74
11.46%
10.96%
38.97
39.22
39.48
39.75
40.04
40.34
40.66
2.00%
10.46%
40.68
40.97
41.27
41.60
41.94
42.30
42.69
We have assumed a beta of 1.5 and a risk-free rate of 4.09%. Our assumed market yield stands at 9%. Based on these figures, and assuming full self-financing in the long term, this produces a WACC of 11.5%.
Peer group comparison InVision’s valuation on the basis of a peer group comparison uses three peer groups. •
Comparable US companies
•
Listed German pure play software providers (product business of over 60% with top-line growth of over 20%)
•
Multiplier comparison based on previous transactions
We believe that the EV/EBIT multiplier for financial year 2007 is of primary importance with respect to the valuation. Although financial year 2008 produces considerably higher values, we have discarded these due to the low earnings visibility for 2008. It is worth taking into account that InVision is likely to grow at a far faster rate than its peer group, which is what makes the company particularly interesting from a valuation point of view (see below). We have based our comparative analysis on the following companies:
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Comparable US companies Genesys The US company based in Daly City employs a global workforce of around 4000 and its core business concentrates on call centre software. The company is globally active. NICE Systems NICE Systems has its headquarters in Ra’anana in Israel and currently employs a global workforce of 1,416. In its core business area, the company focuses on call centre software and security. Verint Systems This US company is based in Melville, New York and focuses on the provision of business and security software. Verint Systems is globally active. German pure play software providers SAF The Swiss company SAF AG has its headquarters in Tägerwilen and concentrates on scheduling and planning software. In addition to Switzerland and Germany, the company also has locations in the US and Slovakia. Update software Update is a listed company with its registered office in Vienna. At present, the leading European provider of CRM software employs a workforce of around 186. Utimaco Safeware Ultimaco a global manufacturer of professional data protection solutions. The company is based in Oberursel near Frankfurt am Main and currently employs around 270 people. Recent transactions in the sector (company takeovers) Kronos Inc The US-firm Kronos Inc is based in Chelmsford and employs a workforce of around 2,500. The company is active in the US, the UK, Asia and South America and markets WFM solutions. Witness Systems Inc The US-company based in Roswell deals with workforce optimisation software. It employs a global workforce of 834. Workbrain Corp. Workbrain Corp. is based in Canada and employs around 650 people. The company focuses on workforce management solutions and its products are marketed in the US, the UK and Australia. The following table sets out the consensus estimates for the listed peer groups:
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Peer Group InVision Company Workforce Management Genesys NICE Systems Verint Systems
LC
Price
MC
EV
in LC
in LC m
in LC m
EPS 07e
06e
08e
06e
Sales 07e
08e
EBIT 07e
06e
08e
EUR ILs USD
1.35 14,970.00 31.35
94.3 7,745.9 1,009.1
121.9 7,068.4 744.8
0.10 4.95 1.24
n.a. 5.95 1.27
n.a. 141.90 141.00 141.80 n.a. n.a. n.a. 6.88 1,750.47 2,106.73 2,371.44 #WERT! #WERT! #WERT! 1.44 350.57 435.15 601.69 32.20 42.05 60.65
German Pure Play Softwareanbieter SAF EUR Update software EUR Utimaco EUR
25.01 4.58 13.20
138.5 52.2 194.6
135.0 44.0 161.8
0.83 0.30 0.58
1.28 0.34 0.56
1.93 0.42 0.67
Invision
EUR
08e
23.50 271.49 48.05
20.80 402.03 56.40
21.50 510.26 100.26
13.43 23.60 41.80
20.35 31.50 49.68
28.52 36.50 59.68
4.71 2.70 8.90
6.72 3.80 9.35
10.54 5.20 12.08
4.98 3.30 9.85
7.28 4.20 11.33
11.37 6.30 14.35
10.73
18.05
25.58
1.95
4.15
6.95
2.03
4.30
7.16
This produces the following multiples:
Table 9; Sources: SES Research, Bloomberg
EBITDA 07e
06e
Peer Group Fair Value (EV) Peer Group Workforce Management Company Workforce Management Genesys NICE Systems Verint Systems
LC
EUR ILs USD
Price
MC
EV
in LC
in LC m
in LC m
1.35 14,970.00 31.35
94.3 7,745.9 1,009.1
121.9 7,068.4 744.8
Average German Pure Play Softwareanbieter SAF EUR Update software EUR Utimaco EUR
25.01 4.58 13.20
138.5 52.2 194.6
135.0 44.0 161.8
06e
P/E 07e
08e
13.50 30.27 25.32
n.a. 25.15 24.70
n.a. 21.76 21.74
0.86 4.04 2.12
0.86 3.36 1.71
0.86 2.98 1.24
n.a. n.a. 23.13
23.03
21.12
19.00
2.34
1.98
1.69
30.17 15.27 22.72
19.54 13.47 23.53
12.99 10.90 19.67
10.05 1.86 3.87
6.63 1.40 3.26
4.73 1.20 2.71
06e
EV/Sales 07e
08e
EV/EBIT 07e
06e
EV/EBITDA 07e
08e
06e
08e
n.a. n.a. 17.71
n.a. n.a. 12.28
5.19 26.04 15.50
5.86 17.58 13.21
5.67 13.85 7.43
23.13
17.71
12.28
15.58
12.22
8.98
28.66 16.28 18.17
20.10 11.57 17.30
12.81 8.45 13.40
27.13 13.32 16.42
18.55 10.47 14.28
11.87 6.98 11.27 10.04
Average
22.72
18.85
14.52
5.26
3.76
2.88
21.04
16.32
11.55
18.96
14.43
Average Total
22.87
19.98
16.76
3.80
2.87
2.29
21.56
16.67
11.73
17.27
13.33
9.51
Median Total
24.02
21.53
16.59
3.00
2.48
1.97
20.65
17.51
12.54
15.96
13.74
9.35
53.52
27.44
15.70
Invision
4.81
2.86
2.02
26.50
12.44
7.43
25.46
12.02
7.22
Fair Value (EV) Peer Group Workforce Management
EUR
32.65
72.97
51.65
25.12
35.69
43.30
45.08
73.53
85.36
31.60
52.48
64.28
Fair Value (EV) Peer Group German Software
56.48
67.90
73.75
41.01
67.76
80.30
38.47
62.01
71.84
Table 10; Sources: SES Research, Bloomberg
If we apply the EV/EBIT multiples in the peer group for 2007, we arrive at appropriate valuations (EV) of between EUR 68 m and EUR 74 m (EUR 40-42 per share), depending on the peer group. For 2008, the values already stand at around EUR 8085 m (EUR 45-48 per share). The value per share are to be understood as a total value (incl. financial funds). Valuation of comparable transactions The valuation of comparable transactions includes three transactions among competitors that were all executed in February/March of this year. As a result, there is substantial scope for comparability: Peer Group InVision - Acquisitions Workforce Management Company
LC
Price
Buyer
per share in LC
Kronos Inc Witness Systems Inc Workbrain Corp.
USD USD USD
Invision
EUR
55.00 Hellman & Friedman 27.50 Verint Systems 12.50 Infor
EV in LC m
1,777.4 880.1 168.1
06e
07e
08e
08e
06e
07e
08e
578.20 214.35 93.63
655.69 252.82 106.30
706.00 292.13 119.18
06e 82.59 22.22 -1.14
07e 90.72 52.60 4.27
101.36 66.75 6.67
113.57 59.48 1.83
126.22 59.40 6.39
136.96 74.32 9.45
10.73
18.05
25.58
1.95
4.15
6.95
2.03
4.30
7.16
Table 11; Sources: SES Research, Bloomberg
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The takeover prices paid produce the following multiples: Peer Group InVision - Acquisitions Workforce Management Company
LC
Price
Buyer
per share in LC
Kronos Inc Witness Systems Inc Workbrain Corp.
07e
08e
06e
07e
08e
06e
07e
08e
2.71 3.48 1.58
2.52 3.01 1.41
21.52 39.62 n.a.
19.59 16.73 39.41
17.54 13.19 25.19
15.65 14.80 91.82
14.08 14.82 26.30
12.98 11.84 17.80
Average
2.99
2.59
2.31
30.57
25.24
18.64
40.75
18.40
14.21
Median
3.07
2.71
2.52
30.57
19.59
17.54
15.65
14.82
12.98
32.11
46.77
59.19
59.58
81.33
129.53
82.70
79.04
101.65
55.00 Hellman & Friedman 27.50 Verint Systems 12.50 Infor
EUR
1,777.4 880.1 168.1
06e 3.07 4.11 1.80
Fair Value (EV) by multiples
USD USD USD
EV in LC m
(median) Table 12; Sources: SES Research, Bloomberg
The EV/EBIT multiples (2007/08) produce enterprise values of EUR 81 m and EUR 103 m respectively for InVision. This means that the scenario here is similar to that produced by the previous peer group comparison.
Conclusion We believe that the InVision post-money valuation of EUR 40 m is fair, although the peer group analyses and the FCF model point towards higher values. The DCF model should be viewed as the central valuation method in this case, because it values the company-specific factors and allows reasonable consideration to be given to the relatively low visibility for earnings from 2008 onwards on the risk side (BETA of 1.5). InVision grew by around 70% in the previous financial year and achieved an EBIT margin of 18% (EUR 1.95 m). This means that earnings increased by EUR 3.6 m as against the prior year, when the company still generated a loss. This highlights something that is key to pure play software providers: InVision has performed the main development work on its product and has a strong client base that ensures regular maintenance income. Further increases in sales will have a significantly above-average impact on the EBIT margin. The raising of capital has to the potential to act as a growth driver for InVision. Capital that is currently being ploughed into the development of the company and measures to attract further clients should pay off several times over in the current situation, given that the main development work has been completed.
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The company’s recent newsflow has been positive and was characterised by the figures for Q1 2007 (as at 31 March 2007) and the 2006 annual report: InVision - Q1/2007 Q1/07
Q1/06
change yoy
2007e
2006
change yoy
Sales
2,645
1,360
94.4%
18,049
10,733
68.2%
Total Sales
2,645
1,360
94.4%
18,049
10,733
68.2%
Gross Profit
2,614
1,331
96.5%
17,869
10,647
67.8%
in % of Total Sales
98.8%
97.8%
99.0%
99.2%
4,151
1,949
23.0%
18.2%
2,648
1,374
14.7%
12.8%
EBIT in % of Total Sales
-289
-846
-10.9%
-62.2%
Net Income
-122
-958
in % of Total Sales
-4.6%
-70.4%
65.91%
87.2%
113.0%
92.7%
Table 13; Source: SES Research
We expect the high top-line growth to continue and predict that InVision will drastically increase its sales and earnings this year. This should become evident in as early as the first half of the year. Due to the IPO, however, the second half and, in particular, the fourth quarter, which is traditionally strong in this sector, will provide the main impetus. The most recent transactions concluded by comparable US companies will have a positive impact on the valuation. These included the following: •
In February 2007, Infor bought Workbrain Corp, which was making a substantial loss, paying 1.4 times its expected sales for 2007.
•
In February 2007, Verint Systems purchased Witness Systems Inc. for 17 times its 2007 EBIT (based on EV).
•
In March 2007, Hellman & Friedman bought Kronos Inc. for 20 times its 2007 EBIT (based on EV).
These transactions show the considerable attention focused on this market segment at present. InVision, too, should benefit from this attention in the future (these transactions are set out in the section entitled “Valuation” in this study). In the medium term, InVision could well make smaller acquisitions. In the first instance, however, we expect to see further organic growth, the attraction of further blue chip clients and the increasing visibility of InVision’s success story on the market.
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Finances
InVision AG’s employee structure 2006, total: 119 employess Sonstige 7%
Entwicklung 51%
Professional Services 26%
Vertrieb 16%
Chart 16; Source: InVision
InVision AG‘s sales structure 2006, total: EUR 10.4 m Dienstleistungen 21%
Lizenzen 57%
Wartung 22%
Chart 17; Source: InVision
Valuation
Newsflow
Company & products
Ratios
Company background InVision AG develops, markets and implements workforce management solutions. The company specialises in solutions for effective personnel deployment (requirement forecasting, staff planning and optimisation, time management and analysis and management). This means that, in general, the company is active on a market that is already occupied by many competitors of different sizes and types. The unique thing about InVision’s solution, however, is the technology allowing the planning/optimisation of work schedules. This technology makes InVision’s solution superior in certain fields of activity where there is a high demand for flexible schedules (e.g. in call centres). Another key feature of InVision’s technology is what is as known as the “Infothek” (info centre), which allows employees to create their own schedules based on availability, qualifications and other planning rules. At the core of this feature is a complex solution that can automatically create schedules with a high degree of optimisation by means of various optimisation procedures. These results are particularly valuable in sectors where the optimisation of workforce deployment based on concrete guidelines and requirement forecasts is exceptionally important. As a result, InVision is active on a niche market. A large number of renowned clients show, however, that InVision is a leader on this niche market. As a pure play software provider, InVision’s main field of activity is product development. Professional Services still accounts for a relatively small proportion of the company’s business, because the solution requires relatively few implementation services and is implemented, in part, by partners. The company’s sales activities are also relatively limited at present and are set for expansion as the company goes public. The fact that the licence business accounts for almost 60% of InVision’s business, resulting in an EBIT margin of almost 20% within the group, is already impressive. As a result, the company’s main income is generated from licences, maintenance and services (implementation and training). In 2006, the company generated highly profitable sales of EUR 10.4 m with 119 employees (currently: 122), although the company still has some way to go before its sales potential has been fully exploited. Today, more than 180 clients in 19 countries use InVision’s solutions.
Company history InVision has its roots in InVision Software GmbH, which was formed in 1995 by the company’s current Executive Board members, Peter Bollenbeck and Mathias Schroer, together with Armand Zohari. The company’s founders were working together on initial projects in as early as 1989. The first pilot projects using InVision solutions were implemented in 1995. In 1997, the company focused on the call centre market and started to move towards internationalisation in 1999. In 2004, the company opted to concentrate on large clients and now generates considerable licence income with this client group, which reaps particular benefits from the use of InVision solutions. Now, in 2007, the company is to go public. SES Research GmbH – A Member of the Warburg Group
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Company structure The following chart shows the structure of InVision AG. All of the company’s major international activities are performed from companies based in the country in question:
Company structure InVision Software AG Ratingen/DE InVision Software,Inc. Chicago/USA (100%)
InVision Software OÜ Tallinn/EE (100%)
InVision Software AB Stockholm/SE (100%)
InVision Software S. L. Madrid/ES (100%)
InVision Software SAS Paris/FR (100%)
InVision Software Systems S. r. L. Milan/IT (100%)
InVision Software B.V. Utrecht/NL (100%)
InVision South Africa (Pty) Ltd. Cape Town/ZA (100%)
InVision IT Systems GmbH Vienna/AT (100%)
Invision Software Ltd. London/UK (100%)
InVision Software GmbH Zürich/CH (100%) Chart 18; Source: InVision
Product structure InVision’s product covers the complete workforce management process chain. The product structure is split into the following areas: forecasting, scheduling, time management and analysis and monitoring, each of which contain several sub-modules. The Forecasting area is split into three modules: the ForecastPro module enables short and medium-term staffing requirement planning. It uses historical data to provide detailed forecasts of a company’s future volume of work. The Capacitor module allows companies to plan long-term staffing requirements and their long-term personnel structure. CampaignPro allows companies to plan one-off or regular campaigns and projects, and to determine the staff required. The Scheduling area is divided into five modules: SchedulePro is the core module for staff scheduling and combines personnel requirements, employees and planning rules to create a schedule (e.g. shift plan). The AutoScheduler module is an optimisation model that can perform staff scheduling and optimisation tasks on a fully automatic basis. Infothek comprises two sub-models. Infothek Interactive Schedule allows employees to participate in the planning process themselves by entering their preferred work times online. The Infothek Inform module provides a range of functions to inform SES Research GmbH – A Member of the Warburg Group
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affected employees of changes to their schedule automatically. The TrainingsPlaner module supports the effective planning and implementation of employee training programmes. DeskManager complements workforce management by assigning employees to workstations and tools and includes these in the optimisation process. The third area is Time Management, which is split into three segments: TimeKeeper can allow companies to organise the real-time compilation, verification and management of time account transactions. The TimeManager module automatically manages and calculates time accounts and expenses for various different accounting periods. The Infothek Time Recording module allows employees to record their working hours on the intranet and Internet. The fourth and final area is Analysis and Monitoring, which is divided into three modules: OnlineCockpit consolidates target versus actual data from internal and external sources in real time and calculates consolidated key operational indicators. The AdherenceMonitor module enables companies to evaluate any deviation from the working hours and activities that employees were scheduled for. Reports is a module for the printing and electronic dissemination of reports and analyses in PDF, HTML and XML format.
Product structure Workforce management process Forecast
Deployment optimisation
Time management
Analysis & monitoring
InVision Enterprise WFM modules
Forecast Pro
SchedulePro
TimeKeeper
OnlineCockpit
Capacitor
AutoScheduler
TimeManager
AdherenceMonitor
CampaignPro
Infothek
Infothek TimeRecording
Reports
SDK
AdminPro
DeskManager TrainingPlaner
InVision Enterprise WFM plat form
Enterprise server
Xlink Suite
Chart 19; Source: InVision
In addition to the enterprise server, the technological platform consists of the following elements: the Xlink Suite, which ensures the connection to external systems, the SDK (software development kit) to support individual in-house developments and the AdminPro module for the administration of master data.
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Sales process and project procedure At InVision, the sales process corresponds to a clear pattern that is typical for the software sector:
Sales process Lead generation
- 15-25 international trade fairs per year - Internet marketing (advertising, google etc.)
Pre-sales
-
Qualification, solution development and presentation
-
Supporting activities such as reference client visits and “clicking sessions” as well as pilot projects were appropriate
- Mailings, telemarketing - In-house events for clients and interested parties
-
Tender
- Client recommendations
-
Duration: up to 12 months (or more for large projects)
Pre-sales
- Commercial and legal contractual negotiation - Signing of contract and/or order - Handover to project management
Chart 20; Source: InVision
Professional Services supports the sales employees/clients for the duration of the project:
Project procedure Sales support
Implementation
Customer care
- Preparation of technically complex offerings
- Successful and highquality project implementation
- Ensuring high client satisfaction following commissioning
- Participation in sales presentations
- Establishment, consolidation and development of reusable knowledge
- Development of additional sales potential
- Implementation of pilot optimisation projects
Chart 21; Source: InVision
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Internationalisation Regional sales split Financial year 2006
Rest of the world 51% DACH 49%
InVision’s solutions are marketed internationally. The proportion of foreign business has risen substantially over the past few years from 25% to 51%. InVision has 11 subsidiaries and guarantees country-specific software coverage thanks to versions in 11 languages. The solution is used in 19 countries and takes country-specific overall conditions (e.g. employment law) into account.
Research and development Product development is the most important component of InVision’s value chain. The solutions are released every 1-2 years. The company’s products are developed in line with the following principle: In principle, R&D department is divided into four areas:
Chart 22; Source: InVision
Product Development Management: identification of professional specifications in cooperation with clients and employees Software Development: establishment of the technical specifications, function programming and rectification of errors Product Documentation: Translation of the interface texts, online help and manuals in all supported languages Quality Assurance: Quality assurance during the development phase and integration tests with acceptance test for new product versions In addition to Ratingen, the company’s main development locations are in Londonderry, Tallinn and Leipzig.
Management Executive Board Peter Bollenbeck (CEO) formed InVision Software GmbH in 1995 with Armand Zohari and Matthias Schroer. Mr. Bollenback started laying the foundations for this career even back in his schooldays, when he worked as a freelance consultant for staff scheduling, production control and management information systems. He abandoned his studies in economics at the distance learning-based Fernuniversität Hagen after five semesters in order to concentrate in full on his entrepreneurial activities. In 1991, Peter Bollenbeck formed pep/Systeme GbR along with Armand Zohari. This company specialised in the development and marketing of workforce management software. In 1993, Mr. Bollenbeck was involved in the formation of Dieter Thörmer Datentechnik GmbH, a company that focused on process visualisation and workforce management. Finally, he was one of the co-founders of InVision Software GmbH. As CEO of InVision, Peter Bollenbeck is responsible for strategy, corporate finance, sales and professional services. Matthias Schroer (CTO) studied electrotechnology in Bochum and abandoned his studies after four semesters to concentrate on his career, which he launched back in 1987, while he was still studying, as a software developer on various scienSES Research GmbH – A Member of the Warburg Group
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tific projects in the areas of medicine and electrotechnology. In 1988, Mr. Schroer joined forces with Armand Zohari to form MASC Datensysteme GbR, which developed a multi-user management information system for use in the food industry. Between 1989 and 1992, Matthias Schroer worked on various software projects on a freelance basis. After that, he became one of the co-founders of InVision, where he is responsible for research and development. Supervisory Board Shareholder structure InVision AG basis: pre IPO InVision Holding GmbH 24%
Armand Zohari 25%
Middle Management 1% Matthias Schroer 25%
Peter Bolleneck 25%
Chart 23; Source: InVision
The Supervisory Board of InVision AG has three members. The Chairman of the Supervisory Board of InVision is Dr. Thomas Hermes. Dr. Hermes, who has a PhD in law, is a partner in the law firm Holthoff-Pförtner in Essen and Berlin. Dr. Christof Nesemeier has been a member of the Supervisory Board of InVision Software AG since 2004. In his main position as managing director of MBB Industries AG, he is responsible for the strategic planning of the company, as well as for equity investment management. The third member of the Supervisory Board is Prof. Dr. Wilhelm Mülder. Professor Mülder has been professor of commercial IT at Niederrhein University of Applied Sciences since 1991. Previously, he was employed in development and consultancy at two software companies.
Shareholder structure Prior to the IPO, 75% of the company’s share capital, which is divided into 1.5 m ordinary bearer shares (EUR 1.5 m) lies in the hands of the company’s founders Bollenbeck, Schroer and Zohari. The remaining 25% is held by InVision Holding GmbH, which has ceded a 1.21 percentage point interest to the company’s employees as part of its employee share plan. This holding company is also owned, to an equal extent, by the three founders.
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Page 34
InVision Software AG Equity story
Competitive quality
Research Note
Finances
Valuation
Newsflow
Company & products
Ratios
Income Statement InVision Income Statement (in EUR m)
2005
2006
2007e
2008e
2009e
Sales
6.4
10.7
18.0
25.6
32.1
Change in Inventories / Assets Capitalised
0.0
0.0
0.0
0.0
0.0
Total Sales
6.4
10.7
18.0
25.6
32.1
COGS Personnel expenses Other operating income Other operating expenses
0.5 5.0 0.3 2.8
0.1 5.7 0.1 3.0
0.2 8.7 0.4 5.2
0.3 11.5 0.5 7.2
0.3 14.2 0.6 8.7
-1.5
2.0
4.3
7.2
9.6
0.0
0.0
0.1
0.1
0.1
-1.6
2.0
4.2
7.1
9.5
0.1 0.0
0.1 0.0
0.0 0.0
0.1 0.0
0.2 0.0
EBITDA Depreciation on fixed assets EBITA Amortisation of intangible assets Impairment charges and Amortisation of goodwill EBIT
-1.6
1.9
4.2
7.0
9.3
Interest income Interest expense Other financial income / expenses Financial Result
0.0 0.0 0.0 0.0
0.0 0.1 0.0 -0.1
0.0 0.5 -0.1 -0.6
0.0 0.6 -0.1 -0.8
0.0 0.6 -0.1 -0.8
Result from Ordinary Operations
-1.7
1.9
3.5
6.2
8.5
0.0
0.0
0.0
0.0
0.0
EBT
-1.7
1.9
3.5
6.2
8.5
Taxes Net Profit of continued operations Net Profit of discontinued operations
-0.4 -1.2 0.0
0.5 1.4 0.0
0.9 2.6 0.0
1.5 4.6 0.0
2.1 6.4 0.0
Net Profit before Minorities
-1.2
1.4
2.6
4.6
6.4
0.0
-0.1
0.0
0.0
0.0
-1.2
1.4
2.6
4.6
6.4
2005
2006
2007e
2008e
2009e
100.0%
100.0%
100.0%
100.0%
100.0%
0.0%
0.0%
0.0%
0.0%
0.0%
100.0%
100.0%
100.0%
100.0%
100.0%
7.8% 78.0% 5.4% 43.9%
0.8% 53.5% 1.3% 28.1%
1.0% 48.2% 2.0% 29.0%
1.0% 45.0% 2.0% 28.0%
1.0% 44.2% 2.0% 27.0%
-24.3%
18.9%
23.8%
28.0%
29.8%
0.2%
0.2%
0.8%
0.2%
0.2%
-24.4%
18.7%
23.0%
27.7%
29.6%
1.1% 0.0%
0.5% 0.0%
0.0% 0.0%
0.6% 0.0%
0.6% 0.0%
Extraordinary Result
Minority Interests Net Profit Income Statement (in % of Sales) Sales Change in Inventories / Assets Capitalised Total Sales COGS General and Administrative expenses Other operating income Other operating expenses EBITDA Depreciation on fixed assets EBITA Amortisation of intangible assets Impairment charges and Amortisation of goodwill EBIT
-25.6%
18.2%
23.0%
27.2%
29.0%
Interest income Interest expense Other financial income / expenses Financial Result
0.1% 0.4% 0.0% -0.3%
0.0% 0.9% 0.2% -0.6%
0.0% 2.9% -0.6% -3.4%
0.0% 2.5% -0.5% -3.0%
0.0% 2.0% -0.4% -2.4%
Result from Ordinary Operations
-25.9%
17.5%
19.6%
24.2%
26.6%
0.0%
0.0%
0.0%
0.0%
0.0%
EBT
-25.9%
17.5%
19.6%
24.2%
26.6%
Taxes Net Profit of continued operations Net Profit of discontinued operations
-6.4% -19.4% 0.0%
4.2% 13.3% 0.0%
4.9% 14.7% 0.0%
6.0% 18.1% 0.0%
6.7% 20.0% 0.0%
Net Profit before Minorities
-19.4%
13.3%
14.7%
18.1%
20.0%
0.0%
-0.5%
0.0%
0.0%
0.0%
-19.4%
12.8%
14.7%
18.1%
20.0%
Extraordinay Result
Minority Interests Net Profit Table 14; Sources: InVision (reported data), SES Research (estimates)
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Page 35
InVision Software AG Equity story
Competitive quality
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Newsflow
Company & products
Ratios
Balance sheet InVision Balance sheet (in EUR m)
2005
2006
2007e
2008e
2009e
Intangible Assets Fixed Assets Financial Assets
0.1 0.1 0.0
0.0 0.1 0.0
0.1 0.0 0.0
0.1 0.1 0.0
0.1 0.2 0.0
Long-Term Assets
0.1
0.1
0.2
0.2
0.2
Receivables and Other Current Assets Cash and Cash Equivalents
1.1 0.1
3.9 0.1
6.4 22.0
9.0 24.8
11.2 29.7
Current Assets
2.3
5.6
30.0
35.3
42.5
Total Assets
2.4
5.7
30.1
35.5
42.7
Common Stock Additional Paid-In Capital Retained Earnings Accumulated other Comprehensive Income
0.4 0.0 1.2 -2.7
0.4 0.0 1.2 -1.4
2.2 19.2 -0.1 2.6
2.2 19.2 2.5 4.6
2.2 19.2 7.1 6.4
Total Equity
-1.1
0.2
24.0
28.6
35.0
Minority Interest
0.0
0.0
0.0
0.0
0.0
Provisions
0.4
1.3
1.5
1.8
2.2
Financial Liabilities Other Liabilities
0.4 2.7
0.9 3.3
0.9 3.8
0.9 4.2
0.9 4.6
ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Liabilities
3.5
5.5
6.2
6.9
7.7
Total Liabilites and Shareholders' Equity
2.4
5.7
30.1
35.5
42.7
2005
2006
2007e
2008e
2009e
2.1% 4.0% 0.0%
0.8% 1.7% 0.0%
0.4% 0.1% 0.0%
0.3% 0.2% 0.0%
0.2% 0.4% 0.0%
Table 15; Sources: InVision (reported data), SES Research (estimates) Balance sheet InVision Balance sheet (in % of Balance Sheet Total) ASSETS Intangible Assets Fixed Assets Financial Assets Long-Term Assets
6.2%
2.5%
0.5%
0.5%
0.5%
Receivables and Other Current Assets Cash and Cash Equivalents
46.7% 3.1%
67.5% 2.5%
21.2% 73.1%
25.2% 69.8%
26.2% 69.6%
Current Assets
93.8%
97.5%
99.5%
99.5%
99.5%
100.0%
100.0%
100.0%
100.0%
100.0%
15.8% 0.0% 51.4% -114.0%
6.7% 0.0% 21.5% -24.0%
7.4% 63.8% -0.5% 8.8%
6.3% 54.1% 7.1% 13.1%
5.2% 45.0% 16.7% 15.0%
-46.8%
4.2%
79.5%
80.5%
82.0%
Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Common Stock Additional Paid-In Capital Retained Earnings Accumulated other Comprehensive Income Total Equity Minority Interest
0.0%
0.2%
0.0%
0.0%
0.0%
15.5%
22.2%
5.0%
5.1%
5.1%
Financial Liabilities Other Liabilities
18.3% 113.0%
15.4% 58.1%
2.9% 12.5%
2.5% 11.8%
2.1% 10.8%
Total Liabilities
146.8%
95.7%
20.4%
19.4%
18.0%
Total Liabilites and Shareholders' Equity
100.0%
100.0%
100.0%
100.0%
100.0%
Provisions
Table 15; Sources: InVision (reported data), SES Research (estimates)
SES Research GmbH – A Member of the Warburg Group
Page 36
InVision Software AG Equity story
Competitive quality
Research Note
Finances
Valuation
Newsflow
Company & products
Ratios
Statement of Cash Flows InVision Statement of Cash Flows (in EUR m)
2005
2006
2007e
2008e
2009e
Net Profit Depreciation on Fixed Assets Amortisation of Goodwill Amortisation of Intangible Assets Changes in Long-Term Provisions Other Non-Cash related payments
-1.2 0.0 0.0 0.1 -0.2 -0.4
1.4 0.0 0.0 0.1 0.9 -0.4
2.6 0.1 0.0 0.0 0.0 0.2
4.6 0.1 0.0 0.1 0.0 0.3
6.4 0.1 0.0 0.2 0.0 0.4
Cash Flow
-1.7
1.9
3.0
5.2
7.0
0.0 0.4 0.7 0.3 1.4
0.0 -2.7 -0.2 0.7 -2.3
0.0 -2.5 0.4 0.0 -2.0
0.0 -2.6 0.5 0.0 -2.1
0.0 -2.2 0.4 0.0 -1.8
Cash Flow from Operating Activities
-0.3
-0.3
1.0
3.0
5.2
CAPEX Cash Paid for Aquisitions Purchases of Marketable Securities Proceeds from Sale of Property and Equipment
-0.1 0.0 0.0 0.0
-0.1 0.0 0.0 0.0
-0.2 0.0 0.0 0.0
-0.2 0.0 0.0 0.0
-0.3 0.0 0.0 0.0
Cash Flow from Investing Activities
Changes in Inventories Changes in Accounts Receivables Changes in Accounts Payable Changes in other constituents of Working Capital Changes in Working Capital
-0.1
-0.1
-0.2
-0.2
-0.3
Dividend payment Changes in Debt Repurchase of Stock Issuance of Common Stock Other
0.0 0.4 0.0 0.0 0.0
0.0 0.4 0.0 0.0 0.0
0.0 0.0 0.0 0.0 21.1
0.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0
Cash Flow from Financing Activities
0.4
0.4
21.1
0.0
0.0
Effect of exchange rate changes
0.0
0.0
0.0
0.0
0.0
Net Changes of Cash and Cash Equivalents
0.0
0.0
21.9
2.8
4.9
Cash and Cash Equivalents, end of period
0.1
0.1
22.0
24.8
29.7
Table 16; Sources: InVision (reported data), SES Research (estimates)
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Page 37
InVision Software AG Equity story
Competitive quality
Research Note
Finances
Valuation
Newsflow
Company & products
Ratios
Financial Ratios InVision 2005
2006
2007e
2008e
2009e
125.6% -25.6% -707.1% -838.6%
81.8% 18.2% 64.6% 981.7%
77.0% 23.0% 83.9% 1648.6%
72.8% 27.2% 98.0% 2444.7%
71.0% 29.0% 103.8% 2827.1%
65.8 29.2 -20.4
113.0 3.4 4.5
653.3 3.5 0.7
307.5 3.5 0.8
209.8 3.5 0.8
-877.2% -832.6% 110.2% -168.8%
187.6% 195.3% 577.4% 40.8%
28.9% 29.9% 11.1% 9.6%
24.1% 24.8% 16.2% 14.3%
26.8% 27.5% 18.3% 16.3%
365.0 -32.4% -39.0% 0.7 0.6 0.0 0.0
737.0 309.7% 369.3% 1.3 1.0 20.8 19.9
-21,130.4 -88.2% 3.7% 6.5 4.9 8.3 8.0
-23,922.1 -83.6% 3.1% 6.9 5.1 n.m. n.m.
-28,823.5 -82.3% 2.5% 7.7 5.5 n.m. n.m.
-394.1 -6.2% -1,571.8 -24.6% 0.3 10.5% 5.9% 0.0
-405.7 -3.8% 1,943.1 18.1% -0.3 4.2% 14.8% 0.0
788.5 4.4% 4,241.8 23.5% 0.3 0.0% 59.2% 0.0
2,791.7 10.9% 7,073.3 27.6% 0.6 0.0% 72.8% 0.0
4,901.4 15.3% 9,456.2 29.5% 0.8 0.0% 72.8% 0.0
-1.8% 0.2% -138.6% 10.1% 115.1% 0.0 53.3 46.3 7.0
-0.8% 0.2% -103.8% 14.8% 566.6% 0.0 125.8 22.2 103.6
-0.9% 0.8% -114.3% 22.6% 568.2% 0.0 125.0 22.0 103.0
-0.9% 0.2% -114.3% 24.1% 568.2% 0.0 125.0 22.0 103.0
-0.9% 0.2% -114.3% 25.4% 568.2% 0.0 125.0 22.0 103.0
Operational Efficiency Total Operating Costs / Sales (%) EBIT-Margin (%) Operating Return (%) ROA (%) Efficiency of Capital Employment Plant Turnover Operating Assets Turnover Capital Employed Turnover Return on Capital ROCE EBITDA / Average Capital Employed (%) ROE ROIC Solvency YE Net Debt Net Gearing Debt / Equity (%) Current Ratio Acid Test Ratio EBITDA / Interest Paid Interest Cover Cash Flow Free Cash Flow (EURm) Free Cash Flow / Sales (%) Adj. Free Cash Flow (EURm) Adj. Free Cash Flow / Sales (%) Free Cash Flow / Net Income Interest Received / Average Cash (%) Interest Paid / Average Debt (%) Dividend Payout Ratio Funds Management Capex / Sales (%) Maintenance Capex / Sales (%) Capex / Depreciation (%) Average Working Capital / Sales (%) Trade Creditors / Trade Debtors (%) Inventory processing period (days) Receivables collection period (days) Payables payment period (days) Cash conversion cycle (days)
Table 17; Sources: InVision (reported data), SES Research (estimates)
SES Research GmbH – A Member of the Warburg Group
Page 38
InVision Software AG
Research Note
Legal Disclaimer This research report was prepared by the SES Research GmbH, a subsidiary of the M.M.Warburg & CO KGaA. It contains selected information and does not purport to be complete. The report bases on publicly available information and data ("the Information") believed to be accurate and complete. SES Research GmbH neither does examine the Information to be accurate and complete, nor guarantees its accuracy and completeness. Possible errors or incompleteness of the Information do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. In particular, neither M.M.Warburg & CO KGaA nor the SES Research GmbH are liable for the statements, plans or other details contained in the Information concerning the examined companies, their associated companies, strategies, economic situations, market and competitive situations, regulatory environment, etc. Although due care has been taken in compiling this research report, it cannot be excluded that it is incomplete or contains errors. M.M.Warburg & CO KGaA and SES Research GmbH, their shareholders and employees are not liable for the accuracy and completeness of the statements, estimations and the conclusions derived from the Information contained in this document. Provided any research report is being transmitted in connection with an existing contractual relationship, i.e. financial advisory or similar services, the liability of M.M.Warburg & CO KGaA and SES Research GmbH shall be restricted to gross negligence and willful misconduct. Only in case of failure in essential tasks, M.M.Warburg & CO KGaA and SES Research GmbH are liable for normal negligence. In any case, the liability of M.M.Warburg & CO KGaA and SES Research GmbH is limited to typical, expectable damages and the liability for any indirect damages is excluded. This research report does not constitute an offer or a solicitation of an offer for the purchase or sale of any security. Partners, directors or employees of M.M.Warburg & CO KGaA or SES Research GmbH may serve on the board of directors of companies mentioned in a report. Opinions expressed in this report are subject to change without notice. All rights reserved.
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Disclosure according to Section 34b of the German Securities Trading Act and FinAnV Section 34 b of the German Securities Trading Act in combination w ith the FinAnV requires an enterprise preparing a securities analysis to point out possible conflicts of interest w ith respect to the company that is the subject of the analysis. In this connection, w e point out that: - M.M.Warburg & CO KGaA or SES Research GmbH has been a member of a syndicate that has underw ritten securities of the company that is the subject of this analysis in the last 12 months. - M.M.Warburg & CO KGaA is serving as a liquidity provider for securities of the company that is the subject of this analysis on the basis of an existing designated sponsorship contract.
The valuation underlying the rating of the equity security analysed in this report is based on generally accepted and widely used methods of fundamental valuation, such as DCF model, Peer group comparison and – where applicable – a Sum-of-the-parts model. M.M.Warburg & CO KGaA and SES Research GmbH have set up effective organisational and administrative arrangements to prevent and avoid possible conflicts of interest and, where applicable, to disclose them. Valuations, ratings and target prices for the companies analysed by M.M.Warburg & CO KGaA and SES Research GmbH are subject to constant reviews and may therefore change, if any of the fundamental factors underlying these items do change. All share prices given in this equity analysis are closing prices, except where stated otherwise. Neither M.M.Warburg & CO KGaA’s analysts nor SES Research GmbH's analysts do receive any payments directly or indirectly from any affiliates’ investment banking activity. M.M.Warburg & CO KGaA and SES Research GmbH are under supervision of the BaFin – German Federal Financial Supervisory Authority.
SES Research GmbH – A Member of the Warburg Group
Page 39
InVision Software AG
Research Note
Investment recommendation: expected direction of the share price development for equity security up to the given Target price in the opinion of the analyst who covers the issue. B Buy: The price of the analysed equity security is expected to rise over the next 12 months. H Hold: The price of the analysed equity security is expected to remain mostly flat over the next 12 months. S Sell: The price of the analysed equity security is expected to fall over the next 12 months. “-“ Rating suspended: The available information does not currently permit an evaluation of the company. M.M.Warburg & CO KGaA and SES Research GmbH research universe by rating:
Rating Buy Hold Sell Rating suspended Total
Num ber of stocks
% of universe
101 78 14 9 202
50% 39% 7% 4%
M.M.Warburg & CO KGaA and SES Research GmbH research universe by rating, looking only at companies for which a disclosure according to section 34b German Securities Trading Act has to be made:
Rating Buy Hold Sell Rating suspended Total
Num ber of stocks
% of universe
80 45 7 5 137
58% 33% 5% 4%
Price and Rating History Invision Software (IVXG.DE) as of 27.7.07
The boxes on the price and rating history chart indicate the date and rating of the Equity Alert issued by SES Research GmbH. Each box represents a date on which an analyst made a change to a rating, except for the first box, which may represent the rating in place at the beginning of the period or the first Alert written on the issue in the past 12 months.
38 37 36 35 34 33 32 31 30 5.07
6.07
7.07
Sources: Factset (prices) / SES Research (ratings)
SES Research GmbH – A Member of the Warburg Group
Page 40
30.07.2007 Buy
Research Note
Price target:
EUR 40.0
The ideal time to get the show on the road
Price: Tech-All:
32.65 1091.79
InVision is a genuine pure play software provider for workforce management solutions (with royalties accounting for 57% of sales in 2006). The key strength of InVision’s solution lies in staffing
(initial coverage) Bloomberg: Reuters: ISIN Internet: Segment: Sector:
IVX GR IVXG.DE DE00585969 www.InVision.de Prime Standard Software
Tech-All (relativ)
InVision Software 35,5 35 34,5 34 33,5 33 32,5 32 31,5 31 30,5 06/07
07/07
Share data: Bloomberg
07/07
27.07.2007 / Closing price
High /Low 52 w: Market cap. No. of shares: Shareholders:
EUR 34.59 / 32.00 EUR 72.97 m 2.24 m Peter Bollenbeck Matthias Schroer Armand Zohari
17,00% 17,00% 17,00%
InVision Holding GmbH Free Float Calendar:
H1/2007 Figures Q3/07
6,29% 4,71% 14.08.2007 14.11.2007
Analysis: SES Research Publication: Felix Ellmann (Analyst)
30.07.2007 +49-(0)40 309537-12
Institutional Client Contact: M.M.Warburg & CO Barbara C. Effler (Head of Equities) Institutional Equity Sales Christian Alisch Thomas Dinges Matthias Fritsch Dr. James F. Jackson Oliver Jürgens Benjamin Kassen Marina Konzog Linn Lenné Dirk Rosenfelder Marco Schumann Andreas Wessel Sales Trading Oliver Merckel Thekla Struve Gudrun Bolsen Nils Carstens Jörg Treptow Patrick Schepelmann Sales Assistance Wiebke Möller
+49-(0)40 3282-2636 +49-(0)40 3282-2667 +49-(0)40 3282-2635 +49-(0)40 3282-2696 +49-(0)40 3282-2664 +49-(0)40 3282-2666 +49-(0)40 3282-2630 +49-(0)40 3282-2669 +49-(0)40 3282-2695 +49-(0)40 3282-2692 +49-(0)40 3282-2665 +49-(0)40 3282-2663 +49-(0)40 3282-2634 +49-(0)40 3282-2668 +49-(0)40 3282-2679 +49-(0)40 3282-2701 +49-(0)40 3282-2658 +49-(0)40 3282-2700 +49-(0)40 3282-2703
requirement forecasts and the subsequent flexible optimisation of staff deployment. The software tackles mathematical optimisation issues that are extremely difficult to solve. Product specifications of this nature clearly set InVision apart from the competition and explain the company’s strong growth. Over 180 clients, including top names such as Vodafone, Deutsche Telekom or IKEA are testimony to the high competitive quality of InVision’s solutions, which generally provide a return on investment within 6-12 months. InVision’s solutions allow its clients to: •
cut costs by reducing instances of excess cover,
•
boost productivity by reducing instances of insufficient cover,
•
increase employee satisfaction, for example by implementing flexible schedules that employees have a say in
Growth is driven primarily by: the replacement of proprietary systems; a strong client pipeline; the broadening of market access to cover additional areas; the expansion of the company’s sales activities and of the partner business; further internationalisation, taking the company onto the very dynamic international markets, and the planned strengthening of the company’s capital base as a growth catalyst. In financial year 2006, InVision reported growth of around 70% and an EBIT margin of 18% (EUR 1.95 m). This means that the company’s operating result was boosted by EUR 3.6 m as against the prior-year, when it still reported a loss. This highlights a key issue for pure play software providers: InVision has completed the main development work for its product and has a strong client basis that guarantees regular maintenance income. Further increases in sales will have a clearly above-average impact on the EBIT margin, with even this year’s figures expected to confirm this trend (extremely high scalability). As a result, we expect the EBIT margin to increase from 18.2% to 23.0% (EUR 4.15 m) in financial year 207, with sales growth of 68%. The figures for Q1/07 support this assumption.
On June 14, 2007, InVision was listed successfully at the stock exchange which will support further growth. The calculated valuation range for the share is EUR 38 to EUR 46. We initiate the coverage of InVision with the rating “BUY”. Our PT is EUR 40.
Fiscal year ending Sales Gross margin EBITDA EBITDA-margin
12/06
12/07e
12/08e
12/09e
6.4
10.7
18.0
25.6
32.1
92.2%
99.2%
99.0%
99.0%
99.0%
-1.5
2.0
4.3
7.2
9.6
-24.3%
18.9%
23.8%
28.0%
29.8%
-1.6
1.9
4.2
7.0
9.3
EBIT-margin
-25.6%
18.2%
23.0%
27.2%
29.0%
Net Income
-1.2
1.4
2.6
4.6
6.4
Operating Cash Flow
-0.6
0.61
1.19
2.08
2.87
EBIT
DPS Dividend Yield
0.00
0.00
0.00
0.00
0.00
0.0%
0.0%
0.0%
0.0%
0.0%
EV/Sales
8.09
4.81
2.86
2.02
1.61
EV/EBITDA
n.m.
25.46
12.02
7.22
5.40
EV/EBIT
n.m.
26.50
12.44
7.43
5.55
PER
n.m.
53.52
27.44
15.70
11.38
-877.2%
187.6%
28.9%
24.1%
26.8%
-2.1%
2.6%
8.2%
13.7%
18.3%
ROCE Adj. Free Cash Flow Yield
SES Research GmbH – A Member of the Warburg Group
12/05
Key figures per share in EUR, all other in m. EUR, Price: 32,65 EUR
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Company background InVision AG was formed in 1995. The two members of the company’s current Executive Board are also the company’s founders. The company is a pure play software provider with income components that are typical for this sector: royalties (57%), maintenance (22%) and services (21%). Over the past few years, the company has demonstrated strong growth, and was able to report top-line growth of around 70% in 2006 following a year of consolidation in 2005. The EBIT margin climbed to just shy of 20%. As a product provider, InVision offers unique technology for the optimisation of corporate staff deployment. The core element of this technology is a complex solution that can automatically produce rotas with a high degree of optimisation using various optimisation procedures. The solutions are particularly valuable in sectors in which staff deployment optimisation on the basis of concrete requirements and demand forecasts is exceptionally important. As a result, InVision is active on a clear niche market that allows the company to generate high returns. A large number of top-name clients show that InVision is a leader on this niche market. Its clients include absolute blue chips such as Deutsche Telekom, Vodafone, IKEA or freenet. In addition to attracting new clients, the expansion of the company’s business with its existing clients alone offers enormous potential for InVision. InVision Fiscal year end
Sales change yoy
Gross Profit
2006
2007e
2008e
2009e
31.12.2006
31.12.2007
31.12.2008
31.12.2009
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
10,647
17,869
25,326
31,756
in % of Sales
99.2%
99.0%
99.0%
99.0%
EBITDA EBIT Net Income
2,029 1,949 1,374
4,296 4,151 2,648
7,155 6,950 4,643
9,559 9,302 6,407
Table 1; Source: SES Research
Competitive and business quality Personnel planning is a traditional field of activity in the IT sector. Since this market is generally divided and the growth rates are only moderate in the industrialised nations, the only companies that can report strong growth are those that offer substantially superior solutions for highly specific areas of application. This applies in InVision’s case. InVision specialises in a specific personnel planning segment, namely the (mathematical) optimisation of staff development. There is considerable cost-cutting potential in this area through the implementation of optimisation solutions. Clear evidence of this potential can be provided to competitors and potential clients, because the solution to the optimisation probSES Research GmbH – A Member of the Warburg Group
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lems is a mathematical one, meaning that is very easy to justify potential cost savings. Large users can generally expect a ROI within 6 to 12 months. InVision has a leading position on the European market in terms of its core competency: optimisation. It is unlikely that the company’s US competitors will gain a stronger foothold internationally and pose any real competitive threat to InVision in Europe, because they will be unable to build up comparable references in Europe in the short term, do not offer the multilingual service that is required within Europe and often lack fundamental, regional market knowledge. On the whole, we believe that there is a positive market trend in the workforce management sector. The “optimisation” segment is a sufficiently small niche on this market, which should allow InVision to gain market share and generate aboveaverage growth as a result. Optimisation offers considerable and, most importantly, measurable potential for many companies. We believe that more than 17 years of experience in the workforce management sector and an established, referenced solution that has allowed over 180 clients to generate a swift ROI are InVision’s main competitive strengths.
Sales and earnings growth Over the course of financial year 2006, InVision was able to demonstrate the massive earnings potential offered by the provision of pure play software for the first time. The company boosted its sales by 70% and drastically increased its net income for the year by more than EUR 2 m, taking it from a loss of EUR 1.25 m to a profit of EUR 1.37 m. The sales growth seen in the previous financial year and the strong first quarter will produce a base effect in the first instance. Thereafter, further top-line growth will be driven by:
SES Research GmbH – A Member of the Warburg Group
•
solid market growth in the call centre and workforce management sector
•
the replacement of proprietary systems, the majority of which only implement rudimentary optimisation measures
•
a strong client pipeline, so far, only few of the possible fields of business/projects have been exploited for the majority of the company’s clients.
•
large pipeline of new potential clients, for which InVision is participating in tenders or with which it is already running pilot projects
•
broadening of market access to cover additional areas outside of the call centre business, often in cooperation with existing major clients
•
expansion of sales activities and expansion of the partner business, which still offers considerable potential
•
further internationalisation, taking the company onto the highly dynamic international markets, which increased their contribution to consolidated sales to 51% last year (+210% growth) Page 3
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•
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the strengthening of the capital basis has the ability to act as a growth catalyst.
Earnings growth is determined primarily by the high scalability of income in the software licensing business. The following factors play a key role in explaining the bottom-line development: •
Reduction of key relative cost items (e.g. development, overheads, others). InVision’s product has already been developed. Further licence sales will now no longer be offset by development costs on a comparable scale to that seen in the past.
•
Expansion of the partner business and, as a result, the realisation of higher margins due to a relatively high proportion of royalties
•
Ongoing expansion of the installed base, and as a result, increase in maintenance income.
As a result, we have arrived at the following sales and earnings forecast: InVision - P&L 2006
2007e
2008e
2009e
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
6,103 2,347 2,283
10,387 3,549 4,113
15,093 5,145 5,343
18,279 7,214 6,584
Total Sales
10,733
18,049
25,581
32,077
Gross Profit
Sales Change yoy
- thereof licenses - thereof maintenance - thereof services
10,647
17,869
25,326
31,756
in % of Total Sales
99.2%
99.0%
99.0%
99.0%
EBIT
1,949
4,151
6,950
9,302
Net Income
1,374
2,648
4,643
6,407
Change yoy in % of Total Sales
n.m. 12.8%
92.7% 14.7%
75.3% 18.1%
38.0% 20.0%
Table 2; Source: SES Research
Valuation The calculated valuation range of between EUR 38 m and EUR 46 m is based on the following valuation methods (under consideration of capital inflow of IPO, post-money):
SES Research GmbH – A Member of the Warburg Group
•
The adjusted Free Cash Flow Yield for 2008e points towards a fair value of EUR 41 m with substantial upside potential in subsequent years (2009e: EUR 52,20 m)
•
The DCF model, based on a beta of 1.5, a risk-free rate of 4.09%, a WACC of 11.5% and a perpetual growth rate of 2% signals a value of EUR 38 m. Nevertheless, we expect
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the margin to drop in the long term and also predict a considerable slowdown in growth (market saturation). This valuation approach is supported by three peer groups (comparison on EV basis, the calculated fair values include net financial item: •
The comparison with listed German pure play software providers indicates an EV of EUR 40 m (2007 EV/EBIT)
•
The comparison with listed US competitors points towards an EV of EUR 42 m (2007 EV/EBIT)
•
The comparison with transaction multiplies for takeovers in the sector indicates an EV of EUR 46 m (2007 EV/EBIT).
Newsflow We expect InVision to report considerable sales growth and a clearly above-average increase in earnings this year. The fourth quarter, which is traditionally strong in this sector, should provide particular momentum. The most recent transactions executed by US peer companies have had a positive effect on the valuation. InVision should also continue to benefit from this. In the medium term, the company could even make a number of smaller acquisitions, which could also raise InVision’s profile.
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ROI value drivers Increased operating performance • Fewer instances of insufficient coverage Æ More sales thanks to better service Reduction in operating costs • Fewer instances of excess coverage and surcharges Æ Lower personnel costs • Automation of workflows and calculations Æ Lower form and process costs • Integration of employees into planning process Æ Reduced recruitment and training costs Chart 1; Source: InVision
Client benefits Company management, operations, finance and management accounting
• Increased operating performance • Lower personnel costs der motivation Betriebskosten • Increased Reduzierung productivity and • Faster and better decisions • Lower administrative costs
Valuation
• More fairness Personnel department • Standard tasks automated to a considerable degree • Reduction of fluctuations IT department • Lower IT costs • Simple administration • Comprehensive expandability Chart 2; Source: InVision
Company & products
Ratios
IT in personnel planning Personnel planning is a traditional field of activity in the IT sector. Staff planning and time management (the recording, structuring and processing of personnel-relevant data) is already offered by a large number of companies (e.g. ATOSS). ERP software providers (e.g. SAP), providers of access control systems (e.g. Primion) or payroll system providers (e.g. P&I) also work in the segments of this market that are relevant to personnel planning, at least in part. Since this market is generally divided and the growth rates are now only moderate in the industrialised nations, the only companies that can report strong growth are those that have specialised in particular market segments and offer substantially superior solutions in these segments. This applies in InVision’s case. The InVision solution InVision specialises in a highly specific segment of personnel planning, namely the optimisation of personnel deployment in certain segments that fulfil the following two core requirements: •
Personnel requirements can be easily forecasted and, where appropriate, can be tracked via models (e.g. call centres)
•
Personal deployment is considerable, meaning that relatively minor optimisation successes can have a relatively large impact in terms of savings (large clients)
Employees • Better work/life balance • Interesting work
Newsflow
If these two requirements are met, the use of optimisation solutions can produce substantial cost-cutting potential. After all, while any switch from manual to IT-based personnel deployment optimisation (using solutions produced by the company’s competitors) could reduce costs in principle, InVision’s highly complex mathematical optimisation methods produce results that, according to information released by the company itself, outperform those offered by the competition. Where it is possible to plan and forecast personnel deployment as precisely as possible, InVision supplies the required methods and results. The subsequent optimisation of personnel deployment is generally greater than the sort of optimisation that the company’s competitors could offer. This means that there is considerable demand for InVision’s solutions, particularly among large clients. While these clients already optimise their personnel deployment, InVision allows them to further increase the extent of optimisation. The larger the systems, the higher the absolute cost savings as a result of relatively small optimisation measures. This is why there is particular demand for InVision’s solutions among large clients. InVision’s solutions allow clients to deploy personnel in an effective manner and, as a result, to achieve the following in particular: •
SES Research GmbH – A Member of the Warburg Group
To cut costs but reducing instances of excess cover,
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•
To boost productivity by reducing instances of insufficient cover,
•
To increase employee satisfaction, for example by implementing flexible schedules that employees have a say in, the “Infothek” (info centre) principle (employees can set, plan and exchange working hours themselves).
Users can generally achieve a ROI within 6 to 12 months. The solution also offers further key advantages such as the reduction of planning costs and increased employee flexibility (see box on the left). Although the high degree of specialisation clearly limits this field of business, it nevertheless explains why InVision is growing at a considerably faster rate than its competitors. References as a competitive advantage In the software sector, references are a key competitive advantage. They underline the quality of the solution and justify its cost-effectiveness. This is explained using a few projects as examples: InVision - reference projects Royal Automobile Club
ABN AMRO
- Royal Automobile Club, UK - More than 4,500 employees - 24-hour service for over 6 m members 6 InVision solution - Deployment optimisation in the following areas: road-side assistance, breakdown assistance & call centre Client benefit
- 16% increase in operating performance, corresponds to annual savings of GBP 1.3 m Coverage of 56 planning rules, - thereof 32 fairness guidelines Planning input reduced by90%
Chart 3; Source SES Research
Freenet customer care AG
- Financial services provider, NL - More than 110,000 employees worldwide
- Internet and telecommunications providerm Germany - Over 1 m broadband clients
- Deployment optimisation and analysis and monitoring for approx. 1,200 employes in 5 service centres
- Deployment optimisation, time management and employee integration for more than 1,000 service centre employees
- Personnel costs cut by7.5% Planning input reduced by over - 50%
- The extent to which employee wishes are fulfilled (i.e. employees can choose their own working hours) averages between 70% and 85% - Fewer employees call in sick due to unwanted working hours - Less fluctuation
InVision has a total of more than 180 clients in 19 countries. The following table provides an overview of references (excerpt):
Invision’s clients (excerpt) Banks • Postbank • Sparda-Bank • RBS • ABN AMRO • ...
Insurance companies • AXA • Allianz • AOK • ...
Telecommunications • Deutsche Telekom • Vodafone • Swisscom • ...
Energy • Eon • Vattenfall • RheinEnergie • EnBW • ...
Other • BMW • IKEA • NORDSEE • ...
Chart 4; Source: InVision AG SES Research GmbH – A Member of the Warburg Group
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National and international dimension of competition We believe that InVision has a leading position in Europe in terms of its core competency of “Planning/Optimisation”. In the other areas of personnel deployment planning and time management, the company’s major European competitors (e.g. Interflex, Torexretail or IGSUS) certainly have solutions that could be superior to InVision’s in part. Nevertheless, when it comes to projects dealing with a very high level of optimisation, the solutions offered by the company’s European competitors appear less focused than InVision’s. As a result, we believe that InVision can continue to grow in Europe despite intense competition on the staff planning and time management markets. On the international stage, however, there are several larger competitors that also offer optimisation solutions with performance that is more comparable to InVision’s. On the call centre market, the company’s main competitors include the following providers: InVision's international competitors - call centre Aspect Software
NICE Systems (IEX)
Witness Systems
Genesys
Registered office
Chelmsford, MA (USA)
Ra'anana (Israel)
Roswell, GA (USA)
Daly City, CA (USA)
Sales
USD 610 m (2006)
USD 414 m (2006)
USD 222 m (2006)
n/v
Employees
2.100
1.416
834
4.000
Internationality
global
global
global
global
Core business
Call centre software
Call centre software/ security
Workforce optimisation software
Call centre software
Chart 5; Source SES Research
In the overarching human capital management (HCM) sector, InVision’s main competitors include the following: InVision's international competitors - HCM Kronos
Torex Retail
Workbrain
RedPrairie (BlueCube)
Registered office
Chelmsford, MA (USA)
Oxfordshire (UK)
Toronto, Kanada
Waukesha, WI (USA)
Sales
USD 578 m (2006)
GBP 191 m (2006)
USD 96 m (2006)
n/v
Employees
2.500
2.285
650
approx. 600
Internationality
USA, UK, Asia, South America
UK, Europe, USA
USA, UK, Australia
USA, UK, (Europe)
Core business
WFM solutions
Sector solution, commerce WFM solutions
Supply chain management
Chart 6; Source SES Research
Some of these competitors are in a position to compete with InVision, in technical terms, in the planning/optimisation sector, too. This acts as a stumbling block to growth in the US. We believe, however, that InVision’s main growth potential lies in Germany, as well as in other European countries. It would appear unlikely that these competitors will gain a stronger foothold internationally and pose any real competitive SES Research GmbH – A Member of the Warburg Group
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threat to InVision in Europe. This is because the company’s international competitors are flawed by typical weaknesses: •
They do not have any comparable references in Europe,
•
They do not offer any comparable multilingual services, which are required on the European market,
•
The complex and highly diverse employment law situation in Europe is often underestimated and
•
The US competitors often lack fundamental understanding of the differences in European working practices, remuneration, etc.
As a result, we believe that US competitors only pose a very limited threat. All in all, we therefore believe that InVision is well focused and that its chosen specialisation makes sense in a comparison with its competitors. Optimisation niche market as a selling point and growth driver We believe that there is a positive market trend in the workforce management sector on the whole. “Optimisation” is a sufficiently small niche in this sector, which should allow InVision to continue to gain market share and, as a result, generate above-average growth. Optimisation offers considerable and, most importantly, measurable potential for many companies. We believe that InVision’s key strength in the competitive environment lies in its 17 years of experience in the workforce management sector and an established, referenced solution that has allowed over 180 clients to generate a swift ROI.
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Recent performance In financial year 2006, InVision boosted its sales by 70% and drastically increased its earnings, which rose by more than EUR 2 m from EUR –1.25 m to EUR 1.37 m. This trend continued in Q1. InVision - Q1/2007 Q1/07
Q1/06
change yoy
2007e
2006
change yoy
Sales
2,645
1,360
94.4%
18,049
10,733
68.2%
Total Sales
2,645
1,360
94.4%
18,049
10,733
68.2%
Gross Profit
2,614
1,331
96.5%
17,869
10,647
67.8%
in % of Total Sales
98.8%
97.8%
99.0%
99.2%
4,151
1,949
23.0%
18.2%
2,648
1,374
14.7%
12.8%
EBIT in % of Total Sales
-289
-846
-10.9%
-62.2%
Net Income
-122
-958
in % of Total Sales
-4.6%
-70.4%
65.91%
87.2%
113.0%
92.7%
Table 3; Source: SES Research
Compared to the previous year sales almost doubled in Q1, while earnings increased by EUR 0.6 m from EUR-0.9 m to EUR-0.3 m. The fact that earnings remained in the red is normal for the sector. Q2 and Q4 are normally the strong quarters for licence-driven business models. We expect InVision to generate just under 60% of its income in the fourth quarter alone. Although the first quarter is generally of limited informational value for the year as a whole, two key points are worth noting. Sales doubled year-on-year. The assumption that this trend will continue is explained below. We expect to see sales increase by 68% in this financial year. Earnings improved by EUR 0.6 m year-on-year. If we extrapolate this improvement, our forecast of a EUR 2.2 m increase in earnings in 2007 appears absolutely justified and borders on the conservative. If we assume further, realistic economies of scale in the course of the year, our forecast would appear to be too low. In the first two quarters, preparations for the raising of capital had a negative impact on earnings. This measure is expected to start bearing fruit in the second half of the year. On the whole, we believe that the first quarter supports our earnings forecast.
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Growth in sales Any assessment of sales growth must first of all differentiate between the three types of sales: Licence sales (one-off licence fee for unlimited use, in terms of both location and timeframe) lie at the core of any software company and should increase further in line with successful sales activities. Existing client relationships act as a catalyst in this respect (subsequent licences and expansion of sales to cover other business areas of major clients). Service sales form the basis for the licensing business, because each project has a set service requirement (mainly implementation and training). The fact that the company’s services are performed by its own employees means that these sales are not as scalable as the licence sales. The latter can also be boosted by strong partner business, as well as by subsequent or new licences. Maintenance sales result directly from the licences sold (installed base). They amount to 15% of the respective installed basis per year, depending on the licence amount. Top-line growth will be supported by: •
solid market growth
•
the replacement of proprietary systems
•
strong client pipeline
•
broadening of market access
•
expansion of sales activities and expansion of the partner business
•
internationalisation
•
possible strengthening of the capital base as a growth catalyst
InVision - Sales per brand
Sales Change yoy
2006
2007e
2008e
2009e
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
Licenses
6.103
10.387
15.093
18.279
Change yoy
121,0%
70,2%
45,3%
21,1%
in % of Sales
56,9%
57,5%
59,0%
57,0%
Maintenance
7.214
2.347
3.549
5.145
Change yoy
6,2%
51,2%
45,0%
40,2%
in % of Sales
21,9%
19,7%
20,1%
22,5%
6.584
Services
2.283
4.113
5.343
Change yoy
61,4%
80,2%
29,9%
23,2%
in % of Sales
21,3%
22,8%
20,9%
20,5%
Table 4; Source: SES Research
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Solid market growth In principle, the market for human capital management systems is believed to offer high growth potential. According to AMR, the global market is expected to grow by 10% a year, reaching a volume of USD 8.7 bn in 2010. In the call centre systems sector, workforce management systems are standard. In addition to the growth of the call centre market, growth is expected to come from system professionalization, as many companies are still using outdated technology for optimisation purposes (e.g. EXCEL files). Datamonitor expects the “Workforce Optimisation Technology” market to display annual growth of 12.1%, reaching a volume of USD 1.4 bn in 2009. The workforce management subsegment is expected to chart annual growth of 10.1% and account for USD 366 m in 2009. Frost & Sullivan expects market growth in the segment for workforce management solutions for call centres totalling 13.7% annually and reaching USD 433 m in 2010. The firm expects the EMEA market share to increase to 30% of the global market, producing a significantly higher growth rate of 20.5% p.a. on this particular market. This is due to the fact that the market for solutions of this nature has yet to undergo liberalisation in Europe. InVision's main comparable competitors originate from the US, and we believe that the company occupies a unique position in Europe. InVision is considerably outperforming the market in terms of growth. Over the past few years, the company has grown by around 30% p.a. Last year, sales grew by as much as almost 70%. Similarly, in addition to base effects due to InVision’s small size, there are a number of key growth drivers that have fostered, and will continue to foster substantial growth at InVision: Replacement of proprietary systems Particularly in Europe, the workforce management market is characterised to a considerable degree by proprietary or very straightforward systems. Often, smaller call centres still perform manual optimisation. Furthermore, optimisation is still seen as being less important than advanced time management and personnel planning systems. This means that there is still considerable potential for optimisation using professional solutions as far as the replacement of sub-optimum systems is concerned. This market structure, which is advantageous for InVision, represents a key growth driver which, in our view, is actually more important to the company than market growth itself. This is because InVision’s systems are usually employed during a later investment cycle, namely when the company in question has already set up the infrastructure, when the latter is up and running, and when the company starts asking questions with respect to improved optimisation.
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Strong client pipeline As mentioned above, InVision has over 180 clients. Follow-up business is a key pillar of InVision’s business model. This is highlighted in the following examples: InVision's reference clients Deutsche Telekom (T-Mobile)
Mannesmann Mobilfunk
The German mobile telephony provider uses an InVision solution for 1,500 call centre employees Follow-up business
- New areas: T-Com VC, T-Com TK - Upgrades to release 4 ar T-Mobile, T-Com - International group subsidiaries: T-Mobile AT, HT Telecom, Htmobile
-
IKEA
The German mobile telephony provider uses an InVision solution for 2,500 call centre employees
IKEA Germany uses an InVision solution for 100 call centre employees.
Follow-up business
Follow-up business
with international group subsidiaries and equity interests Vodafone Omnitel (Italy) SFR/Cegetel (France) Swisscom Mobile (Switzerland) Safaricom (Kenya)
- Domestic group subsidiaries: Vivento Customer Services - Expansion of area of application: back office - Functional expansion: Capacitor, TrainingPlanner - Client-specific developments: SAP integration, data warehouse interface, among others - Increase in benefits due to various subsequent user licence purchases
-
IKEA International 50,000+ employees 100+ home furnishings stores in 11 countries Various international call centres
- Various international logistics centres - Functional scope: requirement forecasting, deployment optimisation, time management and analysis and monitoring
Chart 7; Source: InVision
These projects show how much potential still lies in InVision’s client base. The company should be able to exploit this potential at a relatively low marketing cost. In this respect, one factor that is particularly important is that InVision has been focusing on large clients for several years now and is expending the business areas with these clients from merely call centres, to cover other areas with similar requirements. This is particularly relevant with respect to a client like IKEA. This issue will be examined in further detail in the next section. Broadening of market access Share of call centre projects in total sales in % 100 90 80 70 60 50 40 30 20
In principle, workforce management solutions can be employed in a whole range of sectors and business areas, provided that the necessary conditions for planning and optimisation (see above) are met. Although InVision has its roots in the call centre market, the relative proportion of sales attributable to this segment has fallen over the past few years (although the proportion is on the rise in absolute terms). This shows that the solution can obviously also work well in sectors outside of the call centre industry. The chart below shows the areas which could act as potential business areas for InVision (the areas in boxes have been localised as target markets):
10 0 2004
2005
Call Center Projekte
2006
2007e
Andere Projekte
Chart 8; Source: InVision
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Business model Area of application Call centres
Back office
Sales organisation
Logistics
Production
External sales
Financial services providers
Telecommunications
Sector
Supply & waste management
Wholesale & retail
Transport & logistics
Other Sales focus “call centres“ and “back office”
Ideal conditions for deployment optimisation Chart 9; Source: InVision
Sales focus Sales focus “transport “retail” & logistics”
Good conditions for deployment optimisation
We believe that the expansion of market access also constitutes a key top-line growth driver. In the first instance, this relates to the commerce, transport and logistics. Expansion of sales activities and the partner business One key factor for pure play software providers is whether or not they can manage to focus on licence sales without having to provide the associated, low-margin services themselves, meaning that they can focus on further developing their solutions. Implementation partners that can perform this work within the framework of the company’s projects are merely supplied with software licences, which is very attractive for InVision from a margin point of view. At present, the company works with the following partners:
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Implementation partners Type of resources
Deployment regions
•
Application consultants
FR, IT, NL, NO, SE, ES,
•
Software developers
•
Application consultants
•
IT consultants
PL, RU, UK, US UK, FR, MA
FR, DE, PL •
Application consultants
•
Application consultants
•
Application consultants
•
Application consultants
IT
South America
Chart 10; Source: InVision
These partners are involved in InVision’s projects, which explains the high contribution made by licence sales and the relatively low service sales. InVision has already stated that expanding its partner business is one of its objectives, because at present, its partners still do not generate their own leads (client acquisitions) and InVision does not pursue any active partner management policy. This offers considerable potential. This issue is to be tackled and should result in additional sales growth, along with aboveaverage margins.
Sales by region
Internationalisation
in million EUR 12 10 8 6 4 2
DACH
2006
2005
2004
0
ROW
Chart 11; Source: InVision
The reorientation of the company’s sales activities in 2004/05 to focus on major international clients, company-wide workforce management and management restructuring (account managers were entrusted with managerial duties) reduced the company’s sales activities in the Germany/Austria/Switzerland (GAS) region (decline in sales in 2005: –12%). The strategic shift, as well as the establishment of increased sales capacity considerably boosted sales in 2006, particularly abroad. In the GAS region, sales grew by 12%, while they increased by 210% in the rest of the world (ROW). Foreign markets (ROW) now account for 51% of consolidated sales. The fact that the market momentum for the company’s foreign business is far higher than in Germany and that the contribution made to total sales already stands at above 50% following spectacular growth rates shows the enormous potential that internationalisation offers for top-line growth.
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Possible strengthening of the capital base as a growth catalyst We believe that the strengthening of InVision’s capital base should have an above-average impact on the company’s success: •
The technology is developed and established, any moves to step up the company’s sales activities should have a very clear impact on earnings (scaling). To put things simply: once the technology has been developed, each additional licence sold = profit.
•
The same applies to the rapid adaptation of the product to suit other segments. Here, too, the company can enter into new fields of activity at a low adaptation cost and the situation set out above applies by means of analogy.
•
In the medium term, we could also see the company acquiring implementation competence. This would also produce considerable up-selling potential.
•
The improvement of the company’s balance sheet quality is also advantageous in terms of its external image.
Strong sales growth justified The factors set out above highlight the fact that InVision should be able to display strong sales growth in the future.
Earnings growth With average annual top-line growth for the period 2006-2009 of 44%, we expect to see an above-average increase in the operating result. The above-average nature of this increase is due, in our view, to the company’s licence-driven business model. The following factors largely explain the bottom-line development:
SES Research GmbH – A Member of the Warburg Group
•
Below-average development in key cost positions (e.g. development, overheads, other), i.e. these fall in relation to sales
•
The expansion of the partner business and the associated increase in margins due to a higher proportion of licence sales in relative terms
•
The ongoing expansion of the installed base and, as a result, of the high-margin recurring maintenance income
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Below-average increase in cost items vis-à-vis sales Personnel expenses and other operating expenses are by far InVision’s main cost items. This means that both of these items have the greatest impact on the bottom line. Personnel expenses Personnel expenses
Personnel expenses have increased considerably over the past few years. In the restructuring year, 2005, which saw key structural changes within the company (see above) the ratio increased considerably. In 2006, personnel expenses returned to a normal ratio of 53% and are expected to decrease further (2009e: 44%).
in million EUR, as a % of sales 80,0%
14 12
70,0%
10 8
60,0%
6
50,0%
4
51% of personnel expenses are attributable to development, 26% to services, 16% to sales and 7% to other areas. The high development expense, in particular, is expected to fall in relation to sales. The proportion of expenses relating to services is likely to remain constant on the back of a steady project flow. The fact that the only 16% of the company’s personnel expenses are attributable to sales, and that it is nevertheless reporting strong growth, shows just how much potential is offered by the expansion of this area. We therefore expect sales and marketing costs to increase slightly in relation to sales, which means a considerable increase in absolute terms.
40,0%
2 2009e
2008e
2007e
2006
2005
30,0% 2004
0
Chart 12; Source: InVision
Other operating expenses
The personnel expense ratio on the whole, however, is likely to fall due to the expectations of high top-line growth.
in million EUR, as a % of sales 10
50,0%
8
Other operating expenses
40,0%
6 4
Other operating expenses consist primarily of rental, marketing, travel and vehicle costs. In this case, too, we expect to see a decline in costs in relation to sales.
30,0%
2
2009e
2008e
2007e
2006
2005
20,0% 2004
0
Chart 13; Source: InVision
Both cost items are impacted by a key effect. It is estimated that InVision can already generate around 50% of its business with its existing clients. Only 20% of the company’s sales potential has been exploited for 80% of its clients (estimates). Expansion of the partner business
Maintenance fees in million EUR, as a % of sales
2
20,0%
0
10,0% 2009e
30,0%
2008e
4
2007e
40,0%
2006
6
2005
50,0%
2004
8
Chart 14; Source: InVision
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The section above (top line growth) mentioned that the partner business should have a positive impact on sales. The impact on earnings, however, is much greater. This is because a functional partner business means: •
Lead generation by the partner (hardly any sales expense for InVision)
•
Services provided by the partner (no personnel expenses relating to services for InVision)
•
Considerable increase in royalties, which has a direct impact on earnings.
At present, only 30-45% of projects are implemented with the help of partners, which still do not generate leads. The improvement of its partner business is one of InVision’s strategic Page 17
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objectives. We believe that this strategy offers considerable earnings potential (this has not yet been explicitly accounted for in our pre-money scenario). Ongoing expansion of the installed base and, as a result, maintenance income
EBIT in million EUR, as a % of sales 12,00
30,0%
10,00
20,0%
8,00 10,0%
6,00 4,00
0,0%
2,00
-10,0% 2009e
2008e
-4,00
2007e
2006
2005
-2,00
2004
0,00 -20,0% -30,0%
Chart 15; Source: InVision
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Maintenance income continues to rise at InVision. In the first instance, this income charts slower growth than licence sales, because it follows the latter. 15% of the installed base/licences can be booked as annual maintenance income. We believe that in as early as 2009, maintenance income alone will cover the company’s development costs in full. In principle, the installed base can be seen as a hidden reserve at software companies. Earnings situation In financial year 2006, InVision was able to demonstrate the massive earnings potential offered by a pure play software provider for the first time. The company boosted its sales by 70% and drastically increased its earnings, which rose by more than EUR 2 m from EUR-1.25 m to EUR 1.37m. According to our estimates and on the basis of these factors, the earnings situation is as follows:
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InVision - P&L Sales Change yoy
- thereof licenses - thereof maintenance - thereof services Changes in Inventory / Other Total Sales Change yoy
Material Expenses Change yoy in % of Total Sales
Gross Profit in % of Total Sales
2006
2007e
2008e
2009e
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
6,103 2,347 2,283
10,387 3,549 4,113
15,093 5,145 5,343
18,279 7,214 6,584
0
0
0
0
10,733
18,049
25,581
32,077
68.1%
68.2%
41.7%
25.4%
86
180
256
321
-82.8% 0.8%
110.7% 1.0%
41.7% 1.0%
25.4% 1.0%
10,647
17,869
25,326
31,756
99.2%
99.0%
99.0%
99.0%
Other Operating Income
138.5
361.0
511.6
641.5
Change yoy in % of Total Sales
-59.9% 1.3%
160.6% 2.0%
41.7% 2.0%
25.4% 2.0%
Personnel Expenses
5,742
8,700
11,519
14,178
15.3% 53.5%
51.5% 48.2%
32.4% 45.0%
23.1% 44.2%
Change yoy in % of Total Sales
Depreciation Change yoy in % of Total Sales
Other Operating Expenses
80
144
205
257
-3.1% 0.7%
80.2% 0.8%
41.7% 0.8%
25.4% 0.8%
3,014
5,234
7,163
8,661
Change yoy in % of Total Sales
7.6% 28.1%
73.7% 29.0%
36.8% 28.0%
20.9% 27.0%
EBIT
1,949
4,151
6,950
9,302
Change yoy in % of Total Sales
n.m. 18.2%
113.0% 23.0%
67.4% 27.2%
33.8% 29.0%
Financial Result
-68
-620
-760
-760
EBT
1,881
3,531
6,190
8,542
Change yoy in % of Total Sales
n.m. 17.5%
87.7% 19.6%
75.3% 24.2%
38.0% 26.6%
454 24.1%
883 25.0%
1,548 25.0%
2,136 25.0%
Net Income
1,374
2,648
4,643
6,407
Change yoy in % of Total Sales
n.m. 12.8%
92.7% 14.7%
75.3% 18.1%
38.0% 20.0%
Taxes Tax Rate
Table 5; Source: SES Research
The balance sheet InVision’s balance sheet (Q1/2007) can be explained quickly and briefly. Its assets consist more or less exclusively of receivables (trade receivables, 60% of total assets) and deferred tax assets (30% of total assets). InVision has not
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capitalised its own software, which produces a massive hidden reserve. 90% of the liabilities side of the balance sheet comprises current liabilities. The majority of these liabilities are deferred charges and prepaid expenses (maintenance) and trade payables. Equity is low at only EUR 174,000 and the current liabilities to banks of EUR 0.8 m considerably exceed the company’s cash and cash equivalents. At present, this means that the balance sheet is in a critical state and it would certainly make sense for the company to raise further capital. We believe that this is the mark left by the high growth that InVision generated in 2006. Furthermore, InVision has spent a lot of capital on software development over the past few years. A certain amount of debt financing has proven to have made sense from a strategic point of view and is bound to have been more valuable to InVision than the superficial appearance of its balance sheet. On June 14, 2007 InVision was listed successfully at the stock exchange. The InVision share is allocated at EUR 32.00. The 1.077.000 InVision shares were placed successfully. Including greenshoe the issue volume was EUR 34.5 m. The company accrued gros roughly EUR 22.9 m. Thus, the company is absolutely adequate capitalised and the mentioned weakness is eliminated. Balance sheet InVision Balance sheet (in EUR m)
2005
2006
2007e
2008e
2009e
Long-Term Assets
0.1
0.1
0.2
0.2
0.2
Current Assets
2.3
5.6
30.0
35.3
42.5
Total Assets
2.4
5.7
30.1
35.5
42.7
-1.1
0.2
24.0
28.6
35.0
Minority Interest
0.0
0.0
0.0
0.0
0.0
Provisions
0.4
1.3
1.5
1.8
2.2
Total Liabilities
3.5
5.5
6.2
6.9
7.7
Total Liabilites and Shareholders' Equity
2.4
5.7
30.1
35.5
42.7
ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY Total Equity
Table 6; Sources: InVision (reported data), SES Research (estimates)
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Balance sheet InVision Balance sheet (in % of Balance Sheet Total)
2005
2006
2007e
2008e
2009e
ASSETS Long-Term Assets
6.2%
2.5%
0.5%
0.5%
0.5%
93.8%
97.5%
99.5%
99.5%
99.5%
100.0%
100.0%
100.0%
100.0%
100.0%
-46.8%
4.2%
79.5%
80.5%
82.0%
0.0%
0.2%
0.0%
0.0%
0.0%
15.5%
22.2%
5.0%
5.1%
5.1%
Current Assets Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Total Equity Minority Interest Provisions Total Liabilities
146.8%
95.7%
20.4%
19.4%
18.0%
Total Liabilites and Shareholders' Equity
100.0%
100.0%
100.0%
100.0%
100.0%
Table 6; Sources: InVision (reported data), SES Research (estimates)
The cash flow statement Our basic scenario assumes that additional working capital will be required to generate further growth. The expected cash flow shows that it would make sense for the company to raise additional capital (as set out above)
Statement of Cash Flows InVision Statement of Cash Flows (in EUR m)
2005
2006
2007e
2008e
2009e
Cash Flow
-1.7
1.9
3.0
5.2
7.0
Cash Flow from Operating Activities
-0.3
-0.3
1.0
3.0
5.2
Cash Flow from Investing Activities
-0.1
-0.1
-0.2
-0.2
-0.3
Cash Flow from Financing Activities
0.4
0.4
21.1
0.0
0.0
Net Changes of Cash and Cash Equivalents
0.0
0.0
21.9
2.8
4.9
Cash and Cash Equivalents, end of period
0.1
0.1
22.0
24.8
29.7
Table 7; Sources: InVision (reported data), SES Research (estimates)
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Valuation range The range of EUR 38 m to EUR 46 m is based on the following valuation methods (under consideration of capital inflow of IPO, post-money): •
The adjusted free cash flow yield 2008e points towards a fair value of EUR 41 m with substantial upside potential in subsequent years (2009e: EUR 52.20 m)
•
The DCF model, based on a beta of 1.5, a risk-free rate of 4.09%, WACC of 11.5% and a perpetual growth rate of 2%, points towards a value of EUR 38 m. Here, however, we expect to see a drop in the margin in the long term and a very substantial growth slowdown (market saturation).
The valuation approach is underlined by three peer groups (comparisons based on EV, the calculated fair values include net financial items): •
The comparison with German pure play software providers points towards an EV of EUR 40 m (2007 EV/EBIT)
•
The comparison with US competitors suggests an EV of EUR 42 m (2007 EV/EBIT)
•
The comparison with transaction multiples for takeovers in the sector indicates an EV of EUR 46 m (2007 EV/EBIT)
We believe that a post-money valuation of EUR 40 m is appropriate for InVision, because this valuation takes account of the fact that earnings visibility remains low at present.
Free cash flow yield Our adjusted free cash flow yield is based on the assumption that investors buy an asset (in this case, the enterprise value) at a price that means that the free cash flow return (free cash flow = net income for the year + depreciation and amortisation - maintenance capex + taxes - (1-t) interest) on the EV exceeds the opportunity costs. In order to simplify matters, we have based our assumptions on a value of 10%. In as early as the current 2007 financial year, the adjusted free cash flow doubles due to the dynamic top-line and aboveaverage bottom-line growth. For 2008e, this corresponds to a fair value of EUR 70 m, and a value of EUR 93 m for 2009e.
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Free Cash Flow Yield 2005
2006
2007e
2008e
2009e
2010e
-1,241.1 83.0 -19.0 -409.7 23.1 0.0
1,374.3 80.0 -67.7 454.0 32.9 0.0
2,648.5 144.4 -620.0 882.8 53.9 0.0
4,642.9 204.7 -760.0 1,547.6 81.9 0.0
6,406.7 256.6 -760.0 2,135.6 102.7 0.0
7,625.6 282.9 -760.0 2,541.9 113.2 0.0
-1,571.8
1,943.1
4,241.8
7,073.3
9,456.2
11,097.3
-2.1% 10.0%
2.6% 10.0%
8.2% 10.0%
13.7% 10.0%
18.3% 10.0%
21.5% 10.0%
= Actual Enterprise Value
73,337.8
73,709.8
51,651.8
51,651.8
51,651.8
51,651.8
= Fair Enterprise Value
-15,718.2
19,431.4
42,418.0
70,732.5
94,561.9
110,972.6
365.0 0.0 0.0
737.0 0.0 0.0
-21,321.0 0.0 0.0
-21,321.0 0.0 0.0
-21,321.0 0.0 0.0
-21,321.0 0.0 0.0
-16,083.2
18,694.4
63,739.0
92,053.5
115,882.9
132,293.6
+ + +/-
Net Income Depreciation + Amortisation Net Interest Income Taxes Maintenance Capex Others
= Adjusted Free Cash Flow Adjusted Free Cash Flow Yield Fair Free Cash Flow Yield
- Net Debt (Cash) - Pension Liabilities - Off Balance Sheet = Fair Market Capitalisation Table 8; Source: SES Research
DCF model In order to calculate a value for InVision on the basis of the expected medium to long-term business success, we have applied a DCF model. In the years leading up to 2009, we expect further sales growth at a high level, in particular in 2007. Due to the extremely high scalability of the business, we expect to see a considerable increase in earnings, because the main development work on the software has already been performed. It is possible for InVision to expand into further areas of activity and the company has already started to do so. Sales and, in particular, earnings growth will be supported by the further expansion of the partner business and ongoing growth in maintenance income, which we estimate will cover the company’s development costs in full by as early as 2009. It is particularly worth mentioning that InVision already has an extremely renowned client base and that the potential has not yet been anywhere near exploited for individual clients. We expect sales to increase by 42% a year in the period leading up to 2009, with the EBIT margin likely to increase from 18% to 29%. From 2011 onwards, we expect sales growth to decline considerably to 5% and also expect the EBIT margin to gradually fall to 20%. This assumption is designed to take account of the fact that no long-term forecast can be made for the dynamic markets for software solutions. We have assumed a perpetual growth rate of 2%.
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DCF Model 2007e Sales Change
EBIT
2008e
2009e
2010e
2011e
2012e
2013e
2014e
2015e
2016e
2017e
2018e
2019e
2020e
18.0
25.6
32.1
35.4
37.1
39.0
40.9
43.0
45.1
47.4
49.8
52.2
54.9
57.6
68.2%
41.7%
25.4%
10.2%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
4.2
7.0
9.3
10.9
10.4
10.9
11.5
12.0
9.0
9.5
10.0
10.4
11.0
11.5
EBIT-Margin
23.0%
27.2%
29.0%
30.9%
28.0%
28.0%
28.0%
28.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
Tax rate
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
0.1
0.2
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.3
0.3
0.3
0.8%
0.8%
0.8%
0.8%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
Depreciation in % of Sales
Change in Liquidity from - Working Capital - Capex
-2.0 -0.2
-2.1 -0.2
-1.8 -0.3
-0.9 -0.3
2.6 -0.2
-0.4 -0.2
-0.4 -0.2
-0.4 -0.2
-0.4 -0.2
-0.5 -0.2
-0.5 -0.2
-0.5 -0.3
-0.5 -0.3
-0.5 -0.3
0.9%
0.9%
0.9%
0.9%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
Other
0.0
0.0
0.0
0.0
-1.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Free Cash Flow
1.0
3.1
5.1
7.2
9.4
7.8
8.2
8.6
6.3
6.7
7.0
7.3
7.7
8.1
2.75%
Capex in % of Sales
(WACC-Model)
Valuation (EUR mln)
Model parameter 43.8
Debt ratio
Terminal Value
20.0
Costs of Debt
n.a.
Liabilities
-0.9
Market return
Liquidity
22.2
Risk free rate
Equity Value
85.1 Beta WACC Terminal Growth
Terminal Growth
Sensitivity Value per Share (EUR)
Present values 2020e
0.00%
WACC
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
12.46%
34.78
34.93
35.09
35.26
35.44
35.62
35.82
9.00%
11.96%
36.05
36.23
36.41
36.61
36.81
37.03
37.26
4.09%
11.71%
36.73
36.92
37.12
37.33
37.56
37.79
38.04
11.46%
37.44
37.65
37.87
38.10
38.34
38.59
38.87
1.50
11.21%
38.19
38.41
38.65
38.90
39.16
39.44
39.74
11.46%
10.96%
38.97
39.22
39.48
39.75
40.04
40.34
40.66
2.00%
10.46%
40.68
40.97
41.27
41.60
41.94
42.30
42.69
We have assumed a beta of 1.5 and a risk-free rate of 4.09%. Our assumed market yield stands at 9%. Based on these figures, and assuming full self-financing in the long term, this produces a WACC of 11.5%.
Peer group comparison InVision’s valuation on the basis of a peer group comparison uses three peer groups. •
Comparable US companies
•
Listed German pure play software providers (product business of over 60% with top-line growth of over 20%)
•
Multiplier comparison based on previous transactions
We believe that the EV/EBIT multiplier for financial year 2007 is of primary importance with respect to the valuation. Although financial year 2008 produces considerably higher values, we have discarded these due to the low earnings visibility for 2008. It is worth taking into account that InVision is likely to grow at a far faster rate than its peer group, which is what makes the company particularly interesting from a valuation point of view (see below). We have based our comparative analysis on the following companies:
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Comparable US companies Genesys The US company based in Daly City employs a global workforce of around 4000 and its core business concentrates on call centre software. The company is globally active. NICE Systems NICE Systems has its headquarters in Ra’anana in Israel and currently employs a global workforce of 1,416. In its core business area, the company focuses on call centre software and security. Verint Systems This US company is based in Melville, New York and focuses on the provision of business and security software. Verint Systems is globally active. German pure play software providers SAF The Swiss company SAF AG has its headquarters in Tägerwilen and concentrates on scheduling and planning software. In addition to Switzerland and Germany, the company also has locations in the US and Slovakia. Update software Update is a listed company with its registered office in Vienna. At present, the leading European provider of CRM software employs a workforce of around 186. Utimaco Safeware Ultimaco a global manufacturer of professional data protection solutions. The company is based in Oberursel near Frankfurt am Main and currently employs around 270 people. Recent transactions in the sector (company takeovers) Kronos Inc The US-firm Kronos Inc is based in Chelmsford and employs a workforce of around 2,500. The company is active in the US, the UK, Asia and South America and markets WFM solutions. Witness Systems Inc The US-company based in Roswell deals with workforce optimisation software. It employs a global workforce of 834. Workbrain Corp. Workbrain Corp. is based in Canada and employs around 650 people. The company focuses on workforce management solutions and its products are marketed in the US, the UK and Australia. The following table sets out the consensus estimates for the listed peer groups:
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Company & products
Ratios
Peer Group InVision Company Workforce Management Genesys NICE Systems Verint Systems
LC
Price
MC
EV
in LC
in LC m
in LC m
EPS 07e
06e
08e
06e
Sales 07e
08e
EBIT 07e
06e
08e
EUR ILs USD
1.35 14,970.00 31.35
94.3 7,745.9 1,009.1
121.9 7,068.4 744.8
0.10 4.95 1.24
n.a. 5.95 1.27
n.a. 141.90 141.00 141.80 n.a. n.a. n.a. 6.88 1,750.47 2,106.73 2,371.44 #WERT! #WERT! #WERT! 1.44 350.57 435.15 601.69 32.20 42.05 60.65
German Pure Play Softwareanbieter SAF EUR Update software EUR Utimaco EUR
25.01 4.58 13.20
138.5 52.2 194.6
135.0 44.0 161.8
0.83 0.30 0.58
1.28 0.34 0.56
1.93 0.42 0.67
Invision
EUR
08e
23.50 271.49 48.05
20.80 402.03 56.40
21.50 510.26 100.26
13.43 23.60 41.80
20.35 31.50 49.68
28.52 36.50 59.68
4.71 2.70 8.90
6.72 3.80 9.35
10.54 5.20 12.08
4.98 3.30 9.85
7.28 4.20 11.33
11.37 6.30 14.35
10.73
18.05
25.58
1.95
4.15
6.95
2.03
4.30
7.16
This produces the following multiples:
Table 9; Sources: SES Research, Bloomberg
EBITDA 07e
06e
Peer Group Fair Value (EV) Peer Group Workforce Management Company Workforce Management Genesys NICE Systems Verint Systems
LC
EUR ILs USD
Price
MC
EV
in LC
in LC m
in LC m
1.35 14,970.00 31.35
94.3 7,745.9 1,009.1
121.9 7,068.4 744.8
Average German Pure Play Softwareanbieter SAF EUR Update software EUR Utimaco EUR
25.01 4.58 13.20
138.5 52.2 194.6
135.0 44.0 161.8
06e
P/E 07e
08e
13.50 30.27 25.32
n.a. 25.15 24.70
n.a. 21.76 21.74
0.86 4.04 2.12
0.86 3.36 1.71
0.86 2.98 1.24
n.a. n.a. 23.13
23.03
21.12
19.00
2.34
1.98
1.69
30.17 15.27 22.72
19.54 13.47 23.53
12.99 10.90 19.67
10.05 1.86 3.87
6.63 1.40 3.26
4.73 1.20 2.71
06e
EV/Sales 07e
08e
EV/EBIT 07e
06e
EV/EBITDA 07e
08e
06e
08e
n.a. n.a. 17.71
n.a. n.a. 12.28
5.19 26.04 15.50
5.86 17.58 13.21
5.67 13.85 7.43
23.13
17.71
12.28
15.58
12.22
8.98
28.66 16.28 18.17
20.10 11.57 17.30
12.81 8.45 13.40
27.13 13.32 16.42
18.55 10.47 14.28
11.87 6.98 11.27 10.04
Average
22.72
18.85
14.52
5.26
3.76
2.88
21.04
16.32
11.55
18.96
14.43
Average Total
22.87
19.98
16.76
3.80
2.87
2.29
21.56
16.67
11.73
17.27
13.33
9.51
Median Total
24.02
21.53
16.59
3.00
2.48
1.97
20.65
17.51
12.54
15.96
13.74
9.35
53.52
27.44
15.70
Invision
4.81
2.86
2.02
26.50
12.44
7.43
25.46
12.02
7.22
Fair Value (EV) Peer Group Workforce Management
EUR
32.65
72.97
51.65
25.12
35.69
43.30
45.08
73.53
85.36
31.60
52.48
64.28
Fair Value (EV) Peer Group German Software
56.48
67.90
73.75
41.01
67.76
80.30
38.47
62.01
71.84
Table 10; Sources: SES Research, Bloomberg
If we apply the EV/EBIT multiples in the peer group for 2007, we arrive at appropriate valuations (EV) of between EUR 68 m and EUR 74 m (EUR 40-42 per share), depending on the peer group. For 2008, the values already stand at around EUR 8085 m (EUR 45-48 per share). The value per share are to be understood as a total value (incl. financial funds). Valuation of comparable transactions The valuation of comparable transactions includes three transactions among competitors that were all executed in February/March of this year. As a result, there is substantial scope for comparability: Peer Group InVision - Acquisitions Workforce Management Company
LC
Price
Buyer
per share in LC
Kronos Inc Witness Systems Inc Workbrain Corp.
USD USD USD
Invision
EUR
55.00 Hellman & Friedman 27.50 Verint Systems 12.50 Infor
EV in LC m
1,777.4 880.1 168.1
06e
07e
08e
08e
06e
07e
08e
578.20 214.35 93.63
655.69 252.82 106.30
706.00 292.13 119.18
06e 82.59 22.22 -1.14
07e 90.72 52.60 4.27
101.36 66.75 6.67
113.57 59.48 1.83
126.22 59.40 6.39
136.96 74.32 9.45
10.73
18.05
25.58
1.95
4.15
6.95
2.03
4.30
7.16
Table 11; Sources: SES Research, Bloomberg
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The takeover prices paid produce the following multiples: Peer Group InVision - Acquisitions Workforce Management Company
LC
Price
Buyer
per share in LC
Kronos Inc Witness Systems Inc Workbrain Corp.
07e
08e
06e
07e
08e
06e
07e
08e
2.71 3.48 1.58
2.52 3.01 1.41
21.52 39.62 n.a.
19.59 16.73 39.41
17.54 13.19 25.19
15.65 14.80 91.82
14.08 14.82 26.30
12.98 11.84 17.80
Average
2.99
2.59
2.31
30.57
25.24
18.64
40.75
18.40
14.21
Median
3.07
2.71
2.52
30.57
19.59
17.54
15.65
14.82
12.98
32.11
46.77
59.19
59.58
81.33
129.53
82.70
79.04
101.65
55.00 Hellman & Friedman 27.50 Verint Systems 12.50 Infor
EUR
1,777.4 880.1 168.1
06e 3.07 4.11 1.80
Fair Value (EV) by multiples
USD USD USD
EV in LC m
(median) Table 12; Sources: SES Research, Bloomberg
The EV/EBIT multiples (2007/08) produce enterprise values of EUR 81 m and EUR 103 m respectively for InVision. This means that the scenario here is similar to that produced by the previous peer group comparison.
Conclusion We believe that the InVision post-money valuation of EUR 40 m is fair, although the peer group analyses and the FCF model point towards higher values. The DCF model should be viewed as the central valuation method in this case, because it values the company-specific factors and allows reasonable consideration to be given to the relatively low visibility for earnings from 2008 onwards on the risk side (BETA of 1.5). InVision grew by around 70% in the previous financial year and achieved an EBIT margin of 18% (EUR 1.95 m). This means that earnings increased by EUR 3.6 m as against the prior year, when the company still generated a loss. This highlights something that is key to pure play software providers: InVision has performed the main development work on its product and has a strong client base that ensures regular maintenance income. Further increases in sales will have a significantly above-average impact on the EBIT margin. The raising of capital has to the potential to act as a growth driver for InVision. Capital that is currently being ploughed into the development of the company and measures to attract further clients should pay off several times over in the current situation, given that the main development work has been completed.
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The company’s recent newsflow has been positive and was characterised by the figures for Q1 2007 (as at 31 March 2007) and the 2006 annual report: InVision - Q1/2007 Q1/07
Q1/06
change yoy
2007e
2006
change yoy
Sales
2,645
1,360
94.4%
18,049
10,733
68.2%
Total Sales
2,645
1,360
94.4%
18,049
10,733
68.2%
Gross Profit
2,614
1,331
96.5%
17,869
10,647
67.8%
in % of Total Sales
98.8%
97.8%
99.0%
99.2%
4,151
1,949
23.0%
18.2%
2,648
1,374
14.7%
12.8%
EBIT in % of Total Sales
-289
-846
-10.9%
-62.2%
Net Income
-122
-958
in % of Total Sales
-4.6%
-70.4%
65.91%
87.2%
113.0%
92.7%
Table 13; Source: SES Research
We expect the high top-line growth to continue and predict that InVision will drastically increase its sales and earnings this year. This should become evident in as early as the first half of the year. Due to the IPO, however, the second half and, in particular, the fourth quarter, which is traditionally strong in this sector, will provide the main impetus. The most recent transactions concluded by comparable US companies will have a positive impact on the valuation. These included the following: •
In February 2007, Infor bought Workbrain Corp, which was making a substantial loss, paying 1.4 times its expected sales for 2007.
•
In February 2007, Verint Systems purchased Witness Systems Inc. for 17 times its 2007 EBIT (based on EV).
•
In March 2007, Hellman & Friedman bought Kronos Inc. for 20 times its 2007 EBIT (based on EV).
These transactions show the considerable attention focused on this market segment at present. InVision, too, should benefit from this attention in the future (these transactions are set out in the section entitled “Valuation” in this study). In the medium term, InVision could well make smaller acquisitions. In the first instance, however, we expect to see further organic growth, the attraction of further blue chip clients and the increasing visibility of InVision’s success story on the market.
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InVision AG’s employee structure 2006, total: 119 employess Sonstige 7%
Entwicklung 51%
Professional Services 26%
Vertrieb 16%
Chart 16; Source: InVision
InVision AG‘s sales structure 2006, total: EUR 10.4 m Dienstleistungen 21%
Lizenzen 57%
Wartung 22%
Chart 17; Source: InVision
Valuation
Newsflow
Company & products
Ratios
Company background InVision AG develops, markets and implements workforce management solutions. The company specialises in solutions for effective personnel deployment (requirement forecasting, staff planning and optimisation, time management and analysis and management). This means that, in general, the company is active on a market that is already occupied by many competitors of different sizes and types. The unique thing about InVision’s solution, however, is the technology allowing the planning/optimisation of work schedules. This technology makes InVision’s solution superior in certain fields of activity where there is a high demand for flexible schedules (e.g. in call centres). Another key feature of InVision’s technology is what is as known as the “Infothek” (info centre), which allows employees to create their own schedules based on availability, qualifications and other planning rules. At the core of this feature is a complex solution that can automatically create schedules with a high degree of optimisation by means of various optimisation procedures. These results are particularly valuable in sectors where the optimisation of workforce deployment based on concrete guidelines and requirement forecasts is exceptionally important. As a result, InVision is active on a niche market. A large number of renowned clients show, however, that InVision is a leader on this niche market. As a pure play software provider, InVision’s main field of activity is product development. Professional Services still accounts for a relatively small proportion of the company’s business, because the solution requires relatively few implementation services and is implemented, in part, by partners. The company’s sales activities are also relatively limited at present and are set for expansion as the company goes public. The fact that the licence business accounts for almost 60% of InVision’s business, resulting in an EBIT margin of almost 20% within the group, is already impressive. As a result, the company’s main income is generated from licences, maintenance and services (implementation and training). In 2006, the company generated highly profitable sales of EUR 10.4 m with 119 employees (currently: 122), although the company still has some way to go before its sales potential has been fully exploited. Today, more than 180 clients in 19 countries use InVision’s solutions.
Company history InVision has its roots in InVision Software GmbH, which was formed in 1995 by the company’s current Executive Board members, Peter Bollenbeck and Mathias Schroer, together with Armand Zohari. The company’s founders were working together on initial projects in as early as 1989. The first pilot projects using InVision solutions were implemented in 1995. In 1997, the company focused on the call centre market and started to move towards internationalisation in 1999. In 2004, the company opted to concentrate on large clients and now generates considerable licence income with this client group, which reaps particular benefits from the use of InVision solutions. Now, in 2007, the company is to go public. SES Research GmbH – A Member of the Warburg Group
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Company structure The following chart shows the structure of InVision AG. All of the company’s major international activities are performed from companies based in the country in question:
Company structure InVision Software AG Ratingen/DE InVision Software,Inc. Chicago/USA (100%)
InVision Software OÜ Tallinn/EE (100%)
InVision Software AB Stockholm/SE (100%)
InVision Software S. L. Madrid/ES (100%)
InVision Software SAS Paris/FR (100%)
InVision Software Systems S. r. L. Milan/IT (100%)
InVision Software B.V. Utrecht/NL (100%)
InVision South Africa (Pty) Ltd. Cape Town/ZA (100%)
InVision IT Systems GmbH Vienna/AT (100%)
Invision Software Ltd. London/UK (100%)
InVision Software GmbH Zürich/CH (100%) Chart 18; Source: InVision
Product structure InVision’s product covers the complete workforce management process chain. The product structure is split into the following areas: forecasting, scheduling, time management and analysis and monitoring, each of which contain several sub-modules. The Forecasting area is split into three modules: the ForecastPro module enables short and medium-term staffing requirement planning. It uses historical data to provide detailed forecasts of a company’s future volume of work. The Capacitor module allows companies to plan long-term staffing requirements and their long-term personnel structure. CampaignPro allows companies to plan one-off or regular campaigns and projects, and to determine the staff required. The Scheduling area is divided into five modules: SchedulePro is the core module for staff scheduling and combines personnel requirements, employees and planning rules to create a schedule (e.g. shift plan). The AutoScheduler module is an optimisation model that can perform staff scheduling and optimisation tasks on a fully automatic basis. Infothek comprises two sub-models. Infothek Interactive Schedule allows employees to participate in the planning process themselves by entering their preferred work times online. The Infothek Inform module provides a range of functions to inform SES Research GmbH – A Member of the Warburg Group
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affected employees of changes to their schedule automatically. The TrainingsPlaner module supports the effective planning and implementation of employee training programmes. DeskManager complements workforce management by assigning employees to workstations and tools and includes these in the optimisation process. The third area is Time Management, which is split into three segments: TimeKeeper can allow companies to organise the real-time compilation, verification and management of time account transactions. The TimeManager module automatically manages and calculates time accounts and expenses for various different accounting periods. The Infothek Time Recording module allows employees to record their working hours on the intranet and Internet. The fourth and final area is Analysis and Monitoring, which is divided into three modules: OnlineCockpit consolidates target versus actual data from internal and external sources in real time and calculates consolidated key operational indicators. The AdherenceMonitor module enables companies to evaluate any deviation from the working hours and activities that employees were scheduled for. Reports is a module for the printing and electronic dissemination of reports and analyses in PDF, HTML and XML format.
Product structure Workforce management process Forecast
Deployment optimisation
Time management
Analysis & monitoring
InVision Enterprise WFM modules
Forecast Pro
SchedulePro
TimeKeeper
OnlineCockpit
Capacitor
AutoScheduler
TimeManager
AdherenceMonitor
CampaignPro
Infothek
Infothek TimeRecording
Reports
SDK
AdminPro
DeskManager TrainingPlaner
InVision Enterprise WFM plat form
Enterprise server
Xlink Suite
Chart 19; Source: InVision
In addition to the enterprise server, the technological platform consists of the following elements: the Xlink Suite, which ensures the connection to external systems, the SDK (software development kit) to support individual in-house developments and the AdminPro module for the administration of master data.
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Sales process and project procedure At InVision, the sales process corresponds to a clear pattern that is typical for the software sector:
Sales process Lead generation
- 15-25 international trade fairs per year - Internet marketing (advertising, google etc.)
Pre-sales
-
Qualification, solution development and presentation
-
Supporting activities such as reference client visits and “clicking sessions” as well as pilot projects were appropriate
- Mailings, telemarketing - In-house events for clients and interested parties
-
Tender
- Client recommendations
-
Duration: up to 12 months (or more for large projects)
Pre-sales
- Commercial and legal contractual negotiation - Signing of contract and/or order - Handover to project management
Chart 20; Source: InVision
Professional Services supports the sales employees/clients for the duration of the project:
Project procedure Sales support
Implementation
Customer care
- Preparation of technically complex offerings
- Successful and highquality project implementation
- Ensuring high client satisfaction following commissioning
- Participation in sales presentations
- Establishment, consolidation and development of reusable knowledge
- Development of additional sales potential
- Implementation of pilot optimisation projects
Chart 21; Source: InVision
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Internationalisation Regional sales split Financial year 2006
Rest of the world 51% DACH 49%
InVision’s solutions are marketed internationally. The proportion of foreign business has risen substantially over the past few years from 25% to 51%. InVision has 11 subsidiaries and guarantees country-specific software coverage thanks to versions in 11 languages. The solution is used in 19 countries and takes country-specific overall conditions (e.g. employment law) into account.
Research and development Product development is the most important component of InVision’s value chain. The solutions are released every 1-2 years. The company’s products are developed in line with the following principle: In principle, R&D department is divided into four areas:
Chart 22; Source: InVision
Product Development Management: identification of professional specifications in cooperation with clients and employees Software Development: establishment of the technical specifications, function programming and rectification of errors Product Documentation: Translation of the interface texts, online help and manuals in all supported languages Quality Assurance: Quality assurance during the development phase and integration tests with acceptance test for new product versions In addition to Ratingen, the company’s main development locations are in Londonderry, Tallinn and Leipzig.
Management Executive Board Peter Bollenbeck (CEO) formed InVision Software GmbH in 1995 with Armand Zohari and Matthias Schroer. Mr. Bollenback started laying the foundations for this career even back in his schooldays, when he worked as a freelance consultant for staff scheduling, production control and management information systems. He abandoned his studies in economics at the distance learning-based Fernuniversität Hagen after five semesters in order to concentrate in full on his entrepreneurial activities. In 1991, Peter Bollenbeck formed pep/Systeme GbR along with Armand Zohari. This company specialised in the development and marketing of workforce management software. In 1993, Mr. Bollenbeck was involved in the formation of Dieter Thörmer Datentechnik GmbH, a company that focused on process visualisation and workforce management. Finally, he was one of the co-founders of InVision Software GmbH. As CEO of InVision, Peter Bollenbeck is responsible for strategy, corporate finance, sales and professional services. Matthias Schroer (CTO) studied electrotechnology in Bochum and abandoned his studies after four semesters to concentrate on his career, which he launched back in 1987, while he was still studying, as a software developer on various scienSES Research GmbH – A Member of the Warburg Group
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tific projects in the areas of medicine and electrotechnology. In 1988, Mr. Schroer joined forces with Armand Zohari to form MASC Datensysteme GbR, which developed a multi-user management information system for use in the food industry. Between 1989 and 1992, Matthias Schroer worked on various software projects on a freelance basis. After that, he became one of the co-founders of InVision, where he is responsible for research and development. Supervisory Board Shareholder structure InVision AG basis: pre IPO InVision Holding GmbH 24%
Armand Zohari 25%
Middle Management 1% Matthias Schroer 25%
Peter Bolleneck 25%
Chart 23; Source: InVision
The Supervisory Board of InVision AG has three members. The Chairman of the Supervisory Board of InVision is Dr. Thomas Hermes. Dr. Hermes, who has a PhD in law, is a partner in the law firm Holthoff-Pförtner in Essen and Berlin. Dr. Christof Nesemeier has been a member of the Supervisory Board of InVision Software AG since 2004. In his main position as managing director of MBB Industries AG, he is responsible for the strategic planning of the company, as well as for equity investment management. The third member of the Supervisory Board is Prof. Dr. Wilhelm Mülder. Professor Mülder has been professor of commercial IT at Niederrhein University of Applied Sciences since 1991. Previously, he was employed in development and consultancy at two software companies.
Shareholder structure Prior to the IPO, 75% of the company’s share capital, which is divided into 1.5 m ordinary bearer shares (EUR 1.5 m) lies in the hands of the company’s founders Bollenbeck, Schroer and Zohari. The remaining 25% is held by InVision Holding GmbH, which has ceded a 1.21 percentage point interest to the company’s employees as part of its employee share plan. This holding company is also owned, to an equal extent, by the three founders.
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Income Statement InVision Income Statement (in EUR m)
2005
2006
2007e
2008e
2009e
Sales
6.4
10.7
18.0
25.6
32.1
Change in Inventories / Assets Capitalised
0.0
0.0
0.0
0.0
0.0
Total Sales
6.4
10.7
18.0
25.6
32.1
COGS Personnel expenses Other operating income Other operating expenses
0.5 5.0 0.3 2.8
0.1 5.7 0.1 3.0
0.2 8.7 0.4 5.2
0.3 11.5 0.5 7.2
0.3 14.2 0.6 8.7
-1.5
2.0
4.3
7.2
9.6
0.0
0.0
0.1
0.1
0.1
-1.6
2.0
4.2
7.1
9.5
0.1 0.0
0.1 0.0
0.0 0.0
0.1 0.0
0.2 0.0
EBITDA Depreciation on fixed assets EBITA Amortisation of intangible assets Impairment charges and Amortisation of goodwill EBIT
-1.6
1.9
4.2
7.0
9.3
Interest income Interest expense Other financial income / expenses Financial Result
0.0 0.0 0.0 0.0
0.0 0.1 0.0 -0.1
0.0 0.5 -0.1 -0.6
0.0 0.6 -0.1 -0.8
0.0 0.6 -0.1 -0.8
Result from Ordinary Operations
-1.7
1.9
3.5
6.2
8.5
0.0
0.0
0.0
0.0
0.0
EBT
-1.7
1.9
3.5
6.2
8.5
Taxes Net Profit of continued operations Net Profit of discontinued operations
-0.4 -1.2 0.0
0.5 1.4 0.0
0.9 2.6 0.0
1.5 4.6 0.0
2.1 6.4 0.0
Net Profit before Minorities
-1.2
1.4
2.6
4.6
6.4
0.0
-0.1
0.0
0.0
0.0
-1.2
1.4
2.6
4.6
6.4
2005
2006
2007e
2008e
2009e
100.0%
100.0%
100.0%
100.0%
100.0%
0.0%
0.0%
0.0%
0.0%
0.0%
100.0%
100.0%
100.0%
100.0%
100.0%
7.8% 78.0% 5.4% 43.9%
0.8% 53.5% 1.3% 28.1%
1.0% 48.2% 2.0% 29.0%
1.0% 45.0% 2.0% 28.0%
1.0% 44.2% 2.0% 27.0%
-24.3%
18.9%
23.8%
28.0%
29.8%
0.2%
0.2%
0.8%
0.2%
0.2%
-24.4%
18.7%
23.0%
27.7%
29.6%
1.1% 0.0%
0.5% 0.0%
0.0% 0.0%
0.6% 0.0%
0.6% 0.0%
Extraordinary Result
Minority Interests Net Profit Income Statement (in % of Sales) Sales Change in Inventories / Assets Capitalised Total Sales COGS General and Administrative expenses Other operating income Other operating expenses EBITDA Depreciation on fixed assets EBITA Amortisation of intangible assets Impairment charges and Amortisation of goodwill EBIT
-25.6%
18.2%
23.0%
27.2%
29.0%
Interest income Interest expense Other financial income / expenses Financial Result
0.1% 0.4% 0.0% -0.3%
0.0% 0.9% 0.2% -0.6%
0.0% 2.9% -0.6% -3.4%
0.0% 2.5% -0.5% -3.0%
0.0% 2.0% -0.4% -2.4%
Result from Ordinary Operations
-25.9%
17.5%
19.6%
24.2%
26.6%
0.0%
0.0%
0.0%
0.0%
0.0%
EBT
-25.9%
17.5%
19.6%
24.2%
26.6%
Taxes Net Profit of continued operations Net Profit of discontinued operations
-6.4% -19.4% 0.0%
4.2% 13.3% 0.0%
4.9% 14.7% 0.0%
6.0% 18.1% 0.0%
6.7% 20.0% 0.0%
Net Profit before Minorities
-19.4%
13.3%
14.7%
18.1%
20.0%
0.0%
-0.5%
0.0%
0.0%
0.0%
-19.4%
12.8%
14.7%
18.1%
20.0%
Extraordinay Result
Minority Interests Net Profit Table 14; Sources: InVision (reported data), SES Research (estimates)
SES Research GmbH – A Member of the Warburg Group
Page 35
InVision Software AG Equity story
Competitive quality
Research Note
Finances
Valuation
Newsflow
Company & products
Ratios
Balance sheet InVision Balance sheet (in EUR m)
2005
2006
2007e
2008e
2009e
Intangible Assets Fixed Assets Financial Assets
0.1 0.1 0.0
0.0 0.1 0.0
0.1 0.0 0.0
0.1 0.1 0.0
0.1 0.2 0.0
Long-Term Assets
0.1
0.1
0.2
0.2
0.2
Receivables and Other Current Assets Cash and Cash Equivalents
1.1 0.1
3.9 0.1
6.4 22.0
9.0 24.8
11.2 29.7
Current Assets
2.3
5.6
30.0
35.3
42.5
Total Assets
2.4
5.7
30.1
35.5
42.7
Common Stock Additional Paid-In Capital Retained Earnings Accumulated other Comprehensive Income
0.4 0.0 1.2 -2.7
0.4 0.0 1.2 -1.4
2.2 19.2 -0.1 2.6
2.2 19.2 2.5 4.6
2.2 19.2 7.1 6.4
Total Equity
-1.1
0.2
24.0
28.6
35.0
Minority Interest
0.0
0.0
0.0
0.0
0.0
Provisions
0.4
1.3
1.5
1.8
2.2
Financial Liabilities Other Liabilities
0.4 2.7
0.9 3.3
0.9 3.8
0.9 4.2
0.9 4.6
ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Total Liabilities
3.5
5.5
6.2
6.9
7.7
Total Liabilites and Shareholders' Equity
2.4
5.7
30.1
35.5
42.7
2005
2006
2007e
2008e
2009e
2.1% 4.0% 0.0%
0.8% 1.7% 0.0%
0.4% 0.1% 0.0%
0.3% 0.2% 0.0%
0.2% 0.4% 0.0%
Table 15; Sources: InVision (reported data), SES Research (estimates) Balance sheet InVision Balance sheet (in % of Balance Sheet Total) ASSETS Intangible Assets Fixed Assets Financial Assets Long-Term Assets
6.2%
2.5%
0.5%
0.5%
0.5%
Receivables and Other Current Assets Cash and Cash Equivalents
46.7% 3.1%
67.5% 2.5%
21.2% 73.1%
25.2% 69.8%
26.2% 69.6%
Current Assets
93.8%
97.5%
99.5%
99.5%
99.5%
100.0%
100.0%
100.0%
100.0%
100.0%
15.8% 0.0% 51.4% -114.0%
6.7% 0.0% 21.5% -24.0%
7.4% 63.8% -0.5% 8.8%
6.3% 54.1% 7.1% 13.1%
5.2% 45.0% 16.7% 15.0%
-46.8%
4.2%
79.5%
80.5%
82.0%
Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Common Stock Additional Paid-In Capital Retained Earnings Accumulated other Comprehensive Income Total Equity Minority Interest
0.0%
0.2%
0.0%
0.0%
0.0%
15.5%
22.2%
5.0%
5.1%
5.1%
Financial Liabilities Other Liabilities
18.3% 113.0%
15.4% 58.1%
2.9% 12.5%
2.5% 11.8%
2.1% 10.8%
Total Liabilities
146.8%
95.7%
20.4%
19.4%
18.0%
Total Liabilites and Shareholders' Equity
100.0%
100.0%
100.0%
100.0%
100.0%
Provisions
Table 15; Sources: InVision (reported data), SES Research (estimates)
SES Research GmbH – A Member of the Warburg Group
Page 36
InVision Software AG Equity story
Competitive quality
Research Note
Finances
Valuation
Newsflow
Company & products
Ratios
Statement of Cash Flows InVision Statement of Cash Flows (in EUR m)
2005
2006
2007e
2008e
2009e
Net Profit Depreciation on Fixed Assets Amortisation of Goodwill Amortisation of Intangible Assets Changes in Long-Term Provisions Other Non-Cash related payments
-1.2 0.0 0.0 0.1 -0.2 -0.4
1.4 0.0 0.0 0.1 0.9 -0.4
2.6 0.1 0.0 0.0 0.0 0.2
4.6 0.1 0.0 0.1 0.0 0.3
6.4 0.1 0.0 0.2 0.0 0.4
Cash Flow
-1.7
1.9
3.0
5.2
7.0
0.0 0.4 0.7 0.3 1.4
0.0 -2.7 -0.2 0.7 -2.3
0.0 -2.5 0.4 0.0 -2.0
0.0 -2.6 0.5 0.0 -2.1
0.0 -2.2 0.4 0.0 -1.8
Cash Flow from Operating Activities
-0.3
-0.3
1.0
3.0
5.2
CAPEX Cash Paid for Aquisitions Purchases of Marketable Securities Proceeds from Sale of Property and Equipment
-0.1 0.0 0.0 0.0
-0.1 0.0 0.0 0.0
-0.2 0.0 0.0 0.0
-0.2 0.0 0.0 0.0
-0.3 0.0 0.0 0.0
Cash Flow from Investing Activities
Changes in Inventories Changes in Accounts Receivables Changes in Accounts Payable Changes in other constituents of Working Capital Changes in Working Capital
-0.1
-0.1
-0.2
-0.2
-0.3
Dividend payment Changes in Debt Repurchase of Stock Issuance of Common Stock Other
0.0 0.4 0.0 0.0 0.0
0.0 0.4 0.0 0.0 0.0
0.0 0.0 0.0 0.0 21.1
0.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0
Cash Flow from Financing Activities
0.4
0.4
21.1
0.0
0.0
Effect of exchange rate changes
0.0
0.0
0.0
0.0
0.0
Net Changes of Cash and Cash Equivalents
0.0
0.0
21.9
2.8
4.9
Cash and Cash Equivalents, end of period
0.1
0.1
22.0
24.8
29.7
Table 16; Sources: InVision (reported data), SES Research (estimates)
SES Research GmbH – A Member of the Warburg Group
Page 37
InVision Software AG Equity story
Competitive quality
Research Note
Finances
Valuation
Newsflow
Company & products
Ratios
Financial Ratios InVision 2005
2006
2007e
2008e
2009e
125.6% -25.6% -707.1% -838.6%
81.8% 18.2% 64.6% 981.7%
77.0% 23.0% 83.9% 1648.6%
72.8% 27.2% 98.0% 2444.7%
71.0% 29.0% 103.8% 2827.1%
65.8 29.2 -20.4
113.0 3.4 4.5
653.3 3.5 0.7
307.5 3.5 0.8
209.8 3.5 0.8
-877.2% -832.6% 110.2% -168.8%
187.6% 195.3% 577.4% 40.8%
28.9% 29.9% 11.1% 9.6%
24.1% 24.8% 16.2% 14.3%
26.8% 27.5% 18.3% 16.3%
365.0 -32.4% -39.0% 0.7 0.6 0.0 0.0
737.0 309.7% 369.3% 1.3 1.0 20.8 19.9
-21,130.4 -88.2% 3.7% 6.5 4.9 8.3 8.0
-23,922.1 -83.6% 3.1% 6.9 5.1 n.m. n.m.
-28,823.5 -82.3% 2.5% 7.7 5.5 n.m. n.m.
-394.1 -6.2% -1,571.8 -24.6% 0.3 10.5% 5.9% 0.0
-405.7 -3.8% 1,943.1 18.1% -0.3 4.2% 14.8% 0.0
788.5 4.4% 4,241.8 23.5% 0.3 0.0% 59.2% 0.0
2,791.7 10.9% 7,073.3 27.6% 0.6 0.0% 72.8% 0.0
4,901.4 15.3% 9,456.2 29.5% 0.8 0.0% 72.8% 0.0
-1.8% 0.2% -138.6% 10.1% 115.1% 0.0 53.3 46.3 7.0
-0.8% 0.2% -103.8% 14.8% 566.6% 0.0 125.8 22.2 103.6
-0.9% 0.8% -114.3% 22.6% 568.2% 0.0 125.0 22.0 103.0
-0.9% 0.2% -114.3% 24.1% 568.2% 0.0 125.0 22.0 103.0
-0.9% 0.2% -114.3% 25.4% 568.2% 0.0 125.0 22.0 103.0
Operational Efficiency Total Operating Costs / Sales (%) EBIT-Margin (%) Operating Return (%) ROA (%) Efficiency of Capital Employment Plant Turnover Operating Assets Turnover Capital Employed Turnover Return on Capital ROCE EBITDA / Average Capital Employed (%) ROE ROIC Solvency YE Net Debt Net Gearing Debt / Equity (%) Current Ratio Acid Test Ratio EBITDA / Interest Paid Interest Cover Cash Flow Free Cash Flow (EURm) Free Cash Flow / Sales (%) Adj. Free Cash Flow (EURm) Adj. Free Cash Flow / Sales (%) Free Cash Flow / Net Income Interest Received / Average Cash (%) Interest Paid / Average Debt (%) Dividend Payout Ratio Funds Management Capex / Sales (%) Maintenance Capex / Sales (%) Capex / Depreciation (%) Average Working Capital / Sales (%) Trade Creditors / Trade Debtors (%) Inventory processing period (days) Receivables collection period (days) Payables payment period (days) Cash conversion cycle (days)
Table 17; Sources: InVision (reported data), SES Research (estimates)
SES Research GmbH – A Member of the Warburg Group
Page 38
InVision Software AG
Research Note
Legal Disclaimer This research report was prepared by the SES Research GmbH, a subsidiary of the M.M.Warburg & CO KGaA. It contains selected information and does not purport to be complete. The report bases on publicly available information and data ("the Information") believed to be accurate and complete. SES Research GmbH neither does examine the Information to be accurate and complete, nor guarantees its accuracy and completeness. Possible errors or incompleteness of the Information do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. In particular, neither M.M.Warburg & CO KGaA nor the SES Research GmbH are liable for the statements, plans or other details contained in the Information concerning the examined companies, their associated companies, strategies, economic situations, market and competitive situations, regulatory environment, etc. Although due care has been taken in compiling this research report, it cannot be excluded that it is incomplete or contains errors. M.M.Warburg & CO KGaA and SES Research GmbH, their shareholders and employees are not liable for the accuracy and completeness of the statements, estimations and the conclusions derived from the Information contained in this document. Provided any research report is being transmitted in connection with an existing contractual relationship, i.e. financial advisory or similar services, the liability of M.M.Warburg & CO KGaA and SES Research GmbH shall be restricted to gross negligence and willful misconduct. Only in case of failure in essential tasks, M.M.Warburg & CO KGaA and SES Research GmbH are liable for normal negligence. In any case, the liability of M.M.Warburg & CO KGaA and SES Research GmbH is limited to typical, expectable damages and the liability for any indirect damages is excluded. This research report does not constitute an offer or a solicitation of an offer for the purchase or sale of any security. Partners, directors or employees of M.M.Warburg & CO KGaA or SES Research GmbH may serve on the board of directors of companies mentioned in a report. Opinions expressed in this report are subject to change without notice. All rights reserved.
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Disclosure according to Section 34b of the German Securities Trading Act and FinAnV Section 34 b of the German Securities Trading Act in combination w ith the FinAnV requires an enterprise preparing a securities analysis to point out possible conflicts of interest w ith respect to the company that is the subject of the analysis. In this connection, w e point out that: - M.M.Warburg & CO KGaA or SES Research GmbH has been a member of a syndicate that has underw ritten securities of the company that is the subject of this analysis in the last 12 months. - M.M.Warburg & CO KGaA is serving as a liquidity provider for securities of the company that is the subject of this analysis on the basis of an existing designated sponsorship contract.
The valuation underlying the rating of the equity security analysed in this report is based on generally accepted and widely used methods of fundamental valuation, such as DCF model, Peer group comparison and – where applicable – a Sum-of-the-parts model. M.M.Warburg & CO KGaA and SES Research GmbH have set up effective organisational and administrative arrangements to prevent and avoid possible conflicts of interest and, where applicable, to disclose them. Valuations, ratings and target prices for the companies analysed by M.M.Warburg & CO KGaA and SES Research GmbH are subject to constant reviews and may therefore change, if any of the fundamental factors underlying these items do change. All share prices given in this equity analysis are closing prices, except where stated otherwise. Neither M.M.Warburg & CO KGaA’s analysts nor SES Research GmbH's analysts do receive any payments directly or indirectly from any affiliates’ investment banking activity. M.M.Warburg & CO KGaA and SES Research GmbH are under supervision of the BaFin – German Federal Financial Supervisory Authority.
SES Research GmbH – A Member of the Warburg Group
Page 39
InVision Software AG
Research Note
Investment recommendation: expected direction of the share price development for equity security up to the given Target price in the opinion of the analyst who covers the issue. B Buy: The price of the analysed equity security is expected to rise over the next 12 months. H Hold: The price of the analysed equity security is expected to remain mostly flat over the next 12 months. S Sell: The price of the analysed equity security is expected to fall over the next 12 months. “-“ Rating suspended: The available information does not currently permit an evaluation of the company. M.M.Warburg & CO KGaA and SES Research GmbH research universe by rating:
Rating Buy Hold Sell Rating suspended Total
Num ber of stocks
% of universe
101 78 14 9 202
50% 39% 7% 4%
M.M.Warburg & CO KGaA and SES Research GmbH research universe by rating, looking only at companies for which a disclosure according to section 34b German Securities Trading Act has to be made:
Rating Buy Hold Sell Rating suspended Total
Num ber of stocks
% of universe
80 45 7 5 137
58% 33% 5% 4%
Price and Rating History Invision Software (IVXG.DE) as of 27.7.07
The boxes on the price and rating history chart indicate the date and rating of the Equity Alert issued by SES Research GmbH. Each box represents a date on which an analyst made a change to a rating, except for the first box, which may represent the rating in place at the beginning of the period or the first Alert written on the issue in the past 12 months.
38 37 36 35 34 33 32 31 30 5.07
6.07
7.07
Sources: Factset (prices) / SES Research (ratings)
SES Research GmbH – A Member of the Warburg Group
Page 40
