Letter from the CEO

First 3 months of 2024, our group recorded consolidated revenues of 44.1 million ron (-18% compared to the same period of last year) a consolidated gross margin of 7.6 million ron (down with 11% vs Q1 2023). The decrease in revenues led to a negative operating result of -8 million ron, as well as a net loss of 9.7 million ron (vs a net loss of 2.7 million ron in Q1 2023).

We are confident in reaching the proposed budget for 2024 because historically 1st quarter generates a maximum of 15% of the group’s annual revenues and 1st semester, approximately 35%. It is specific to consulting and IT solutions business (from which the group currently obtains 85% of its revenues) that projects are contracted in the first part of the year and the delivery and invoicing those projects take place in the second half of the year.

At this moment we have a backlog of signed contracts and which we are going to deliver by the end of this year, of approx. 260 million ron, with an estimated average gross margin of almost 44 million ron. As we said in the previous report, it is the most effervescent start of the year from the perspective of projects already contracted, some of them of significant values (that we reported at the time of their signing). Additional to this backlog, the current qualified pipeline (those projects in various phases of bidding and negotiation with clients but which have not yet materialized in signed contracts) amounts to 183 million ron. Historically speaking, we have an average conversion rate of projects in the pipeline of over 50%.

Starting from 2024, we decided to be even more selective in choosing the projects we hire, which led to a general decrease in consolidated revenues. We focus on projects that involve delivery IT services, less on those that only involve trade, usually characterized by a lower gross margin. This change determined an increase in revenues from IT services by 18%, from 15.6 million ron to 18.4 million ron in the same period and obviously a decrease in revenues from the sale of goods (equipments), from 38 million ron in Q1 2023 to 25 million ron in Q1 2024. From an annualized perspective, analyzing the last 12 months (TTM), the evolution of the results demonstrates the ability of our group to deliver significant operational profitability: consolidated revenues reached 366 million ron, up by almost 72% compared to the previous period, and the gross margin increased to 65.1 million ron, registering a 45% increase. At the same time, the operating profit also registered a positive evolution, reaching the value of 6.7 million ron, increasing by 10%.

In first 3 months, we initiated an extensive restructuring process of Bittnet group, carefully analyzing each company from the perspective of expenses generated by activities. That’s why we focus on simplifying our group structure, streamlining resources and reducing costs. Through these measures we ensure that our operations are sustainable and that we have a solid foundation for increasing profitability. The report highlights the progress made in terms of integration and simplification of the structure towards the goal of having a single commercial brand for each pillar of activity as well as simplified workflows. Thus, 2Net Computer was operationally integrated into TopTech structure, and the management team was unified for Dendrio and Dataware. Also, in each of the two mentioned structures (TopTech & 2Net and Dendrio& Dataware), we now have a single sales director who coordinates the commercial effort. We were forced to reduce by almost 20% the staff in the regional team and we plan to abandon 2 regional branches.

The current approach is part of our long-term strategy for the next four years through which we aim to remain a growth story, growth subordinate to profitability with the aim of rewarding our shareholders for the trust given in these years.

Our ambition for the next four years can be summarized as follows:

• EBITDA: growth 3 times compared to 2023
• Operational Profit: growth of 4 times compared to 2023
• Minimum Net Profit: 30 million RON
• Revenues of 650 million RON by the end of 2027
• NetDebt/EBITDA ratio: under 3

Achieving these objectives will be possible through a mix of organic growth and acquisitions (M&As). The acquisition program aims to invest in service and software companies (including companies with their own IP) that deliver locally complementary services but also have international market clients. Thus, we strengthen the Software&Platforms pillar where the profitability margin is higher, and the seasonality is more balanced between semesters. The financing of these acquisitions will be done through loans (bank or bond issuance) without diluting existing shareholders.

As usual, we encourage you to send us feedback about this report, the company’s evolution or future plans. Investors’ feedback is always welcome. You can always contact us at investors@bittnet.ro

Mihai Logofătu,
Founder & CEO Bittnet Group