Frequentis wächst weiter - CEO Haslacher: "Denken in Generationen, nicht in Quartalen.

Good day, my name is Norbert Haslacher, I am the CEO of Frequentis. Frequentis manufactures air traffic control systems and software for security authorities. The company is growing, the demand, mostly from the authorities side, is strong, long-term, and therefore largely crisis-resistant. We have learned that again and again in recent years. I found a few headlines: Frequentis wants to take off with drones and cloud software. Frequentis is digitizing maritime communication. Or a niche champion for communication technology in aviation. Does Frequentis actually have its own squawk or a wish? Well, the 09 would be suitable from the ISIN AT Frequentis 09. Yes, Frequentis does not have its own squawk. Frequentis is engaged worldwide with technologies that partly come from the 1970s, partly from the 2000s, and partly with technologies that will probably be state of the art in 20 years. That is also the strength: that we can combine the know-how from high-frequency technology to satellite communication, in the analog and digital areas, as far as IP, all within the company group. So this squawk, I believe, is World War II technology, but it is still current. So every aircraft has this transponder that works on very old technology and is identifiable all over the world. But let's turn to the numbers now. 2,200 employees, more or less, generated revenue of about 386 million euros last year, an EBIT of 25 million euros. Now we see the interim balance after six months: revenue rises about 12% to 186.8 million. Order intake grows very significantly, almost 30%, to 208 million, so 20 million more than revenue.

Yes, that is a very good question. The 208 million order intake in the first half was indeed a very great sales success of our sales teams in almost all regions and in both business segments ATM and PST. You know, we follow two major megatrends: one is the megatrend of security, which is of course very intact due to the current global situation, but also the second megatrend, the mobility needs of people and goods, is intact. Even if one discusses a decline in air traffic in Europe, that is negligible compared to the forecast air traffic in Asia in the next 10 years, and also in the USA. So that will be compensated multiple times. That means these two megatrends are very supportive for our sales activities. Do we have enough capacity? I believe yes. We are changing our business model more towards cloud-capable software. We want to strengthen the share of services versus software licenses in favor of software licenses in the medium to long term, which means less personnel deployment is needed to deliver the top line as usual. Nevertheless, you have hit a point with your question that concerns many companies: how do I get the right people on board and get them with the right skill level in the time I need them? That is a challenge not only at our headquarters in Austria, where less than 50% of our colleagues are now located, the rest are distributed all over the world, but it is also a topic in the USA, in Singapore, in Australia, Brazil, so it is a global topic. Our answer to that is that at Frequentis you can do a job that is exciting if you have studied engineering. It is certainly a great challenge to contribute technically here. We save lives with our technology, so it has to work 100%, and you can work for Frequentis anywhere in the world. If tomorrow you have a boyfriend or girlfriend in the USA, you just go to the USA and work for Frequentis there. I was listening very intently, probably two other people too: my boss Peter Heinrich said, 'Man, you as a trained engineer, listen carefully, don't go astray,' and my wife, who probably heard the keyword 'girlfriends' somewhere, said no. But seriously, Australia, New Zealand, USA, with NASA and travels, customers and employees alike are all over the world. The police organizations in Europe are literally showering us with orders.

I believe we have worked very hard on our customer proximity in recent years. A key point was the decision to decentralize our sales organization. We used to have a very Vienna-centric sales model, we dissolved that into a decentralized model where we went more into the regions with local Frequentis subsidiaries and built up personnel there to have customer proximity. That is one thing. The second thing, I believe, is that Frequentis has a very good reputation when it comes to quality. We are not the cheapest, but our quality in project execution, in software development, and also on the product side is recognized worldwide. And the engineering know-how we have and can deliver on the ground wherever in the world is certainly a strength of the Frequentis group. Our people can be sent anywhere, whether to Asia, USA, Africa, they will deliver the projects. The third area is certainly the acquisitions we have made in recent years. We have implemented nine acquisitions since the IPO, and the portfolio has grown. We have developed solutions from them that can offer the customer an integrated control center, for example in the police area, with a command and control system and a communication system. And I believe that the strategy is now proving us right in implementation.

Yes, I believe Frequentis is still a family business, even though we are listed on the stock exchange, and I would say that an understatement is certainly something that belongs to our DNA. Some investors say Frequentis is typical for underpromise and overdeliver, and that is something we like to maintain. We are very long-term oriented, we think in generations, not in quarters, and I think an understatement is appropriate there. We are also active in an area that involves security, and I think one should not boast too much about that.

Both are exciting technology companies where Frequentis conducted an analysis in advance to decide whether we want to develop this technology ourselves or buy it. We weighed it well for market reasons, cost reasons, and risk reasons: do we want to make or buy? And we decided to buy in both areas and consciously started acquisition efforts. Gabriel is a very nice small Norwegian company that has specialized in the topic of reporting in recent years. In a control center, the workstations and the activities of the operators are recorded, that is, the radar image, the voice, even the mouse movements are recorded, in order to be able to prove in an incident, for example if an accident happens with an aircraft during landing, that the controller followed the processes exactly. These recording systems are demanded worldwide, the market is about 140 million addressable for us per year. These recording systems now also offer possibilities to massively optimize and digitalize investigations via perpetrator analytics, so that an AI or a Big Data element automatically generates the time frame in which the incident took place, and thus provides the investigators who come on site to examine the incident with all the data at the right time, thereby reducing the personnel deployment in the security-critical area. That is why we decided on such a comprehensive recording solution. The second area that is very important to us is the topic of cybersecurity. Guardrack offers us with their solution BSI-certified connectors to the Voice over IP world, i.e., to the outside world, and we will now gradually incorporate that into our solutions to give our customers more security when they enter the IP world, with these so-called session border controllers that secure the interface to the internet accordingly. So the decisions were made: not make, but buy.

Yes, it does. We usually start a new year with what we call a scenario of around 40%, meaning 60% of the orders are already in the house for the planned year and we acquire 40% during the year. These 550 million also include multi-year contracts that run beyond one fiscal year. Nevertheless, our business, as you mentioned at the beginning, is a government business, which is naturally more predictable than a commercial business. Authorities are very long-term oriented: when the tender is set, the budget is already available, then it is tendered and awarded. The projects usually run longer because during the project duration there are often changes and new requests from the authorities side. So I would say that the business model that Frequentis has is a very crisis-proof, very stable, and quite predictable business.

Well, I think we have become generally more cautious with our forecasts since Corona, because who would have thought three years ago that Corona would almost completely ground air traffic and we couldn't get to our customers to deliver our projects, or that a conflict over China with Taiwan and the USA would put the chip market under pressure, so that we no longer get energy equipment or that it now takes six months longer and is three times as expensive. So there are many uncertainties that one has to deal with at the moment. Inflation also comes into play. Can we pass on 8% increases to all customers immediately? No, we cannot, because these are gradual processes. In Austria, that is called a 'Schleifregelung'. Especially in ongoing programs, I can only offer new offers with the new cost structure, but cannot pass on my increased costs in all projects. So I believe the framework conditions have changed very strongly, and we are simply on the more cautious side because we cannot assess how inflation will continue in Austria. We are, I think, very high up in the global ranking when it comes to inflation in Austria, where 50% of our colleagues are located. We have to manage well that we can pass on the things to our customers and our prices. We won't succeed one-to-one immediately, and that is why the outlook for this year is also 6 to 8%.

Yes, that is something I always have to explain to journalists before they write an article about Frequentis, to bring them a bit closer to the government business. Frequentis, if you look at the last few years, had a negative first half-year except for a single exception, which was the Corona year 2021. Because we basically collect the costs: the projects are running, the costs are there, but the revenues are only shown when we complete the projects. And authorities usually close the projects at the end of the year. At the end of the year, authorities often realize that there is still budget left and order spare parts or additional change requests, and those are all things that drive profitability. This has been the case for 10, 15, 20 years. I think anyone who does business with authorities will not contradict that. That is simply the seasonality in this government business. And with minus 0.3 million in the first half, we are doing well. In 2018 it was minus 5.5 million in the first half, in 2019 minus 4 million. So I think we have even tried to improve the seasonality a bit so as not to shock our investors too much with a too high negative EBIT in the first half. That will all be made up in the second half with the completion of projects. So in the second half we have to step on the gas significantly, a bit on revenue and clearly on the result.

Yes, six to eight percent is a forecast. Eight percent is quite a lot, six percent is the lower end. But if you tell me whether this year there will still be an attack in Taiwan that paralyzes the chip market, then I could imagine giving a different forecast. I would of course like to do that for many reasons, but you have to make the forecast.

Well, it's not so much about the components for our products; we get 95% of them from Europe, so we are relatively independent, and we always have a need to stockpile at all times, which is why the inventory levels have risen in the balance sheet over the last two years. The issue is that the standard IT manufacturers cannot get these components. I know there are now worldwide efforts to build more and more semiconductor fabs, but I think that is a very expensive process to build such production facilities outside of that region, in the USA and in Europe, but that will take a few years. But we also need servers, screens, keyboards, and they also need these components from semiconductor manufacturers. And I think that is more our problem in our own products.