Letter to the Shareholders
Dear Shareholders,
Once again, we and the entire industry have had an extraordinary financial year. Unpredictable economic and political developments are shaping the economic environment and impacting the overall social conditions in which we operate. We would like to take this opportunity to present to you our way of looking at things and their significance for Deutsche Payment A1M SE.
Economic Environment
After two years shaped by the Corona pandemic, there was great hope for a normalization and stabilization of the economic situation in Europe and the rest of the world. This hope was severely shaken by Russia’s war in Ukraine which has been ongoing since the end of February 2022. High energy prices came in addition to the already existing business challenges, particularly, supply chain disruptions. The manufacturing sector is facing significant challenges. Substantial challenges also arise for retailers whose product offerings inevitably come under pressure when production is absent or delayed. Risks are increasing on the demand side as well. High inflation rates and a sharp rise in the cost of living have caused consumer sentiment and the consumer climate to fall to new historic lows.
The consequences for the payment industry and thus also for our company are obvious. Declining consumer spending is having a negative impact on sales of business customers, from whose referrals we earn fees that depend on the volume of transactions. However, according to our observations, this direct effect is supplemented by an indirect effect: in times of crisis, companies primarily focus on day-to-day business. Strategic decisions such as changing payment providers are then put on hold. In the 2022 financial year, for example, we also had to plan for longer waiting times before the onboarding of business customers could be successfully completed – despite positive discussions. A large, well-known customer also recently postponed a promising project due to an attack on its IT systems.
The negative economic developments are also impacting the payment and fintech industries. Leading payment companies recorded high losses and were subsequently forced to make mass layoffs in order to optimize results and cash flows. We do not see ourselves affected by this development. There are two key reasons for this: first, our asset-light model is based on the approach of outsourcing capital-intensive investments as much as possible, thereby keeping fixed costs under control. Second, our asset-light model coupled with our financing strategy as an owner-managed family company with a stock market listing allows us to bridge financial requirements at short notice through smaller, flexible capital rounds. We were already able to successfully demonstrate this in September 2022 when an investor participated in a capital increase from authorized capital in addition to the major shareholder.
Development of Business Operations
As described above, our business is not unaffected by economic and industry-specific developments. In particular, our sales developed differently than we had expected at the beginning of the year due to increasing onboarding times. Nevertheless, we do not see the industry environment alone as the reason why we lowered our sales and earnings forecast in November. Instead, we need to focus on the development status of our business activities in order to correctly assess the current economic situation.
Our business activity consists of referring business customers to licensed payment service providers and acquiring banks. In doing so, we analyze the needs of our business customers and submit offers to them via payment services provided by our cooperation partners. Our sales department uses the business customer contacts generated in various ways to optimize the business customers’ payment processing and procedures. In addition to traditional individual sales, we always look for cooperations with other resellers in order to jointly place business customers in a structured and long-term manner or on a larger scale. When we drew up our sales/revenue planning for the 2022 and 2023 financial years in spring 2022 – following the completion of the reverse IPO – we took into account revenues from both traditional individual brokerage and the brokerage of entire portfolios in cooperation with resellers. The “predecessor company” Deutsche Payment A1M AG had already successfully brokered such a portfolio in 2021. Our planning for the 2022 financial year also included the successful conclusion of a portfolio deal. This would have been able to offset the negative revenue effects caused by the slow start-up of our sales activities. As recently as November, we held negotiations with three potential partners on the conclusion of a portfolio deal. When these negotiations proved unlikely to be successful, we immediately revised our target figures and published them.
The effects of the reduced target figures for 2022 are – viewed in relation – significant: with the sales expected for 2022 between EUR 700,000 and EUR 800,000, we are at less than 50% of the originally targeted sales. At the same time, in the supposed crisis year of 2022 – based on the sales generated by Deutsche Payment A1M AG and the SE in fiscal year 2021 – we are at a sales growth of 40% to 60%. However, in our opinion, these ratios are not meaningful for the year 2022 – neither in positive nor in negative terms. Following an operational realignment, the company’s business activities were only restarted in the spring of 2021. We are in an early growth phase. In this regard, the shortfall of EUR 1.4 to EUR 1.5 million in the sales target for 2022 is relativized. In particular, against the backdrop of our early stage of development, the long-term perspective on the company’s results is what counts most. Particularly in early growth phases, planning is often associated with major imponderables, which we experienced in in the fiscal year 2022. Nonetheless, we are seeing revenue growth and, more importantly, operational successes, which particuarly include the launch of our open banking solution PayThisWay in addition to the development of the sales and operations and brokered business customer areas. We are also pleased with the conclusion of a long-term cooperation agreement with a European reseller in November, which is working with us in a structured way to expand our business – like a kind of outsourced sales force. The foundation has been laid. We believe in our business model and also in sales that will materialize in the short run. But even more important is our confidence that we will grow significantly in the medium and long run. Against this backdrop, we have also adjusted the sales forecast for the fiscal year 2023 to a lesser extent from EUR 6.2 million to EUR 4.5 million to EUR 5.5 million (i.e., by 12% to 27%). For the financial years 2024 and following, we would like to combine organic and inorganic growth as part of our buy & build strategy.
As far as our earnings forecasts are concerned, we expect EBITDA (earnings before interest, taxes, depreciation, and amortization) between EUR -1.3 million and EUR -1.4 million in 2022 and EBITDA between EUR 0.4 million and EUR 1.3 million in 2023. This already takes into account extensive upfront expenses, for instance, for structural and organizational measures such as the reverse IPO, for the commissioning of technical infrastructure, and for compliance projects. Our goal is to create scalable structures at an early stage in order to grow sustainably within these structures.
Development of the Share
In 2022, the shares of Deutsche Payment A1M SE were listed and tradable on the Open Market of the Düsseldorf Stock Exchange for the first time. However, the share price did not start to substantially change until August 2022. On August 12, a de facto relisting of the share at EUR 12.10 took place as a result of the company value estimated by an auditor on the basis of target figures and published as part of corporate news. Consequently, the share price rose rapidly to as much as EUR 22.40 by November 8, an increase of around 85% since August 12. In our opinion, this increase did not reflect fundamental data. However, it shows that Deutsche Payment A1M SE’s business model was extremely well received on the stock market. In addition, the active trading in the share that has already reached a volume of more than EUR 1 million in just a few months deserves special mention.
As steeply as the share price rose, the share strongly reacted to the reduced target figures published by us on November 10, 2022. The share price fell by around 30% to EUR 16.20 (as of December 1, 2022). In total, the share price has risen by just under 34% since August 12. Here, it is important to emphasize the development status of our company as well. We joined the Düsseldorf Stock Exchange in order to list ourselves as a growth company. In doing so, we also wanted to enable private investors to follow our growth path in the long run. It goes without saying that investments in growth companies entail not only high opportunities but also relatively high risks. Against this background, neither the rapid rise in the share price nor the subsequent correction appear to us to be suitable for evaluating our share. However, we would like to invite interested investors to follow the path of Deutsche Payment A1M SE in the long term. We give you our promise to keep you informed about the current developments of the company on an ongoing basis.
In 2023, we intend to take further measures to improve the external view on our share, for instance, by commissioning research. As already announced in the past, we are also striving to improve liquidity in the share by aiming for an upgrade to the upper tier of the Open Market (Primärmarkt) as well as an inclusion in the trading platform XETRA.
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Despite all the macro- and microeconomic circumstances, we look confidently forward to the upcoming fiscal year. We would like to thank you for your trust.
We wish you all a Merry Christmas and a healthy year 2023!
Berlin, December 1, 2022
Alexander Herbst Dr. Tobias Hagemann
Member of the Board (CEO) Member of the Board (CFO)