28.01.2019 | Schöneck, Germany
6 min read

GK Software ends 2018 with record turnover - major investments in the product portfolio

Total turnover at GK Software rose from EUR 90.45 million to a new record figure of EUR 103 – 106 million, according to provisional figures.
This record turnover figure represents a very successful year for GK Software: turnover in the “GK/Retail” core segment, for example, increased by more than 20 percent to EUR 94 – 97 million. The year was also primarily dominated by a breakthrough in the American market, where it was possible to gain three new customers. Being able to attract six more customers worldwide was evidence of the leading role played by the Company's solutions around the globe.
Major investments in the portfolio of products amounting to EUR 14 million led to probable earnings before tax, interest, depreciation and amortisation (EBITDA) of EUR 4 – 7 million within the core segment (2017=8.8 Mio. Euro). These investments in future growth were therefore the main reason why the EBIT margin of 15 percent, which was the official goal (based on turnover), did not yet materialise during the financial year that just ended.
Overall, the GK Software Group achieved EBITDA of EUR 3 – 6 million, on the basis of the provisional figures.

Explanations of the Ad-hoc-Announcement:

  • GK/Retail core segment grows by more than 20 percent
  • Breakthrough achieved in the USA with three new customers
  • Expansion of strategic position through investments in products

According to the assessment by the Management Board, the 2018 financial year was the most successful in the company’s history. This evaluation is based on the fact that it was not only possible to increase turnover in our core business by far more than 20 percent from a figure of EUR 74.78 million to EUR 94 – 97 million, but also achieve a breakthrough in the largest retail market in the world by gaining three US customers. The global competitiveness of our solutions was also demonstrated by the fact that we were able to attract six more customers from around the world.

The Company used this strength to continue expanding its strategic position by making significant investments in its portfolio of products and its sales reach. This is taking place against a backdrop where the current upheavals in the retail sector are triggering huge and sudden shifts in the market place – and GK Software is planning to benefit from them and responded too in order to make use of specific sales opportunities.

Overall, EUR 14 million was invested in the ongoing and new development of mobile applications and the deployment of artificial intelligence within the retail sector (Artificial Intelligence for Retail or “AIR”), for example, and this figure was entered under expenditure. Both of these areas were only recently strengthened through acquisitions. Another major emphasis in the measures adopted included expanding the functions available in “cloud4retail”. A further EUR 2 million was spent on improving market penetration and gaining access to new markets. The Company is expecting an enhancement of its sales base through the ongoing global go-to-market and therefore a reduction in its reliance on individual sales regions.

In the light of the developments that are described here, the Management Board is expecting the EBITDA in the “GK/Retail” core segment to amount to EUR 4 – 7 million, which is the equivalent of a margin of 4 – 7 percent; this therefore falls short of the goal that we set (2017=8.8 Mio. Euro). However, if we modify the EBITDA by the expenditure on products, which had not yet reached commercial viability during the current year, the Company would have achieved an adjusted EBITDA margin of between 8 and 11 percent.

This and the market position that has been achieved, which is reflected in the well-filled sales pipeline and the very high degree of interest shown in GK Software solutions at the North American Retail Federation’s conference, which has just ended in New York, encourages the Management Board to stand by its medium-term forecast for the year 2020: this envisages an EBIT margin of about 15 percent for the core business.

The strong development of the “GK/Retail” segment was also able to compensate for a decline in turnover of about EUR 4 million in the “IT Services” segment. As part of our concentration on our core business, a decision has been made to halt those parts of this segment, which do not relate to developing and supporting software in line with the obligations arising from customer agreements. The phase-out period is expected to last between three and four years.

This decision does not make it necessary to revise the medium-term forecast, which was issued in the 2017 annual accounts for the year 2020. Overall, the Management Board is expecting an increase in profitability during 2019.