GFT Technologies SE (GFT) Earnings Call Transcript & Summary

Gentlemen, thank you for standing by. I am Alice, your Chorus Call operator. Welcome, and thank you for joining today's conference call on the first 9 months of 2021 of GFT Technologies SE. [Operator Instructions] I would now like to turn the conference over to Jochen Ruetz, CFO. Please go ahead.

Thank you very much. Ladies and gentlemen, good morning, and welcome to the 9 months numbers of GFT Technologies. I hope you all have the presentation. It's available on the website. We're sharing it online at the same time, so many ways to get there. I would dig right in. I know, again, as always, on these Thursdays, a lot of numbers coming out. So you are all busy. Let's jump into the presentation. I directly go to the highlights on Slide #2. So we have been able to accelerate growth for the year, especially for the full year. And as a logical result, we have come with a message on 21st of October, increasing the numbers of '21 somewhat and already giving a guidance for the year '22. So the highlights are that we structurally see higher interest in digitization solutions, as we have been saying, and it is materializing in the market. We see the high demand and it enables us to focus on projects with higher margins. But I also have to mention that we do see salary inflation at the same time happening. And so far, as we are going into higher priced digitization projects, the 2 roughly compensate. But then active cost containment curbs increase in admin expenses. So this is helping a lot on the margin side and the higher orders have lifted our confidence for this year, '21 and for the year '22. You see on this slide, we're giving the numbers, but I'll come back to that on the very last slide, just again. So let's move forward, stick to the 9-month numbers on Slide #3, and look at revenues first, EUR 405 million of revenues after 9 months, that is plus 24% versus previous year 9 months. We do see the order backlog significantly higher than a year ago, a 48% more. The order backlog is pretty much the same number as after Q2. But please keep in mind that we have a relevant number of projects, which end at the end of the year, which means we are not expecting our order backlog to be comparable between the quarters. You can only compare them quarter-over-quarter, so Q3 2021 comparing to Q3 2020. Because going towards the year-end, we have more and more projects ending and then in January, the backlog will fill up again, and it will probably be the highest number when we report Q1 numbers. That's about order backlog. All earnings numbers, especially EBITDA adjusted, are up. EBITDA adjusted, up 50%. On the right side, you see some bullet points. What's the change versus last year. Last year was impacted by the COVID pandemic, which is GFT drove up underutilization was burdening our 2020 numbers with more than EUR 4 million. There is no burden this year. It was burdening 2020 numbers with restructuring costs of EUR 6 million. This year, only a more normalized EUR 1.8 million. And we do see FX picking up to minus EUR 1.4 million. That is even EUR 1 million higher than in 2020. But overall, the EBITDA is benefiting from the top line growth and the efficiencies already talked about. Looking at EBITDA, EBIT and EBT, we see significant increases. We focus on EBT, which stands at EUR 28 million, while tripling versus last year, but that was a low basis. The tax rate will be roughly 25%, which is driving the earnings per share. So let's move forward. Slide #4, diversification improved further. Let's focus on the left side of the graph first, our client diversification. It hasn't changed significantly to the Q2 reporting. We still see the clients above EUR 50 million heavily reducing. Well, there's only one client in that group, which is Deutsche Bank, and their share has reduced from 22% to 17%. Nominally, Deutsche Bank was minus 6% versus the last year's 9 months. Looking at the group above EUR 10 million, we see a significant increase. So last year, we had 6 clients in that bucket. This year it's 12 client. So we grew a couple of bigger than 5 million clients into the next group and now it stands for 37% of our revenue, significantly higher than last year, which, of course, goes a bit against the group's bigger EUR 5 million, bigger EUR 1 million, who are both slightly below previous year. Nominally, stable or growing, but versus the overall strong revenue growth percentage-wise reducing to 14% and 22%, while the funnel of small projects below EUR 1 million is still at 10%. Looking at the right side, all sectors show nominal growth. We divide into the sectors banking, insurance and industry and others. The banking sector grew by 20%, which is a bit slower than our group growth. And therefore, the share of the banking business reduced slightly to 74% of our overall revenue. When we look at insurance, we see growth of 40% versus 9 months last year and now stand for 16% of group revenues after 9 months. And we see Industry & Others growing by 30% and standing for 10% of our total revenues, which brings me to Slide #5. Revenue and EBITDA adjusted by quarter. When we compare Q3 versus Q2, we see it's a growth of 4%, probably the lowest number throughout the year quarter-over-quarter. But of course, finally, our people were able to take off some holidays. And they've really used it. The COVID pandemic was pushing holidays out and the Q3 of '21 was a holiday quarter. We will see the growth in Q4 pick up again, it should again be 8% versus Q3. Comparing Q3 '21 versus Q3 '20, we see a growth of 36% and a significant improvement of 40% on the EBITDA adjusted side. Q3 '20 was already quite comparable to Q3 '21. There was not much restructuring in Q3 last year, and the underutilizations were also coming to an end. So that's already quite comparable. All right. Let's move forward. Slide #6, revenue by segment. Starting with Americas, U.K. and APAC. We do see an organic growth of 45% and a small headwind from FX, leading to a total growth of 42%. Here, nearly all countries were growing, especially Canada, Brazil, the complete Asian region, U.K. and U.S. Or in other words, there wasn't no growth or low growth only in Mexico. Looking at Continental Europe, we also show growth that looked more like no growth in the last reporting we did. We already said that it will come. And here, we are now showing 8% growth versus previous year in Continental Europe, mainly coming from Italy and Germany. In Europe, we do see some headwinds from Deutsche Bank because we have reductions mainly in Continental Europe, but we are more than compensating for that. All right. This brings me to the top 2 clients. Therefore, Slide #7, go a bit more detailed in the top 2 clients (hoping to get rid of that top 2 reporting in 2022). So we will probably look at the last 2 versions of Slide 7 now and when we do the full year reporting. In the bullet points, we see the client concentration reducing, Deutsche Bank or the top 2 clients, which is only Deutsche Bank today. It used to be including Barclays, a lot more, but it is reduced to Deutsche Bank now. we see a reduction to 17%, and we see the account top 2 clients. That's the third to last row in the table reduced by 6%, nominally from 72% last year to EUR 68 million in '21. That is far better than we had initially expected for the Deutsche Bank account that were only down by 6%, which means it is stabilizing. And then we look at all other clients. Well, here, we see growth of 32% across all markets, especially strong in Americas, U.K. and APAC. You see the number of 54% with all other clients there. In Continental Europe, it is only 12% other growth, but not as fast as America, U.K., and APAC. So we will hopefully get rid of the top 2 reporting because it simply does not matter anymore. And hope -- I believe for '22, this will be a relevant sentence. It doesn't matter anymore. Brings me to Slide 8, earnings by segment, and both segments show significant increase in earnings. Let's focus on EBITDA adjusted, but the story is the same for EBITDA and EBT. Just as a reminder, we only adjust for M&A effects. Earn-out is the only adjustment we have, and there's still one earn-out running for our subsidiary in Canada, ending mid-next year, then EBITDA adjusted and EBITDA will look the same. Americas, U.K., on the profitability side, heavily improving mostly because of the strong top line, which leads to higher profits also on the bottom line. We do see efficiencies as well, but mainly it is driven by strong onboarding of people, strong onboarding of projects, leading to new revenues, leading to EBITDA. In Continental Europe, it's a bit different. Here, the growth is not as strong, but we are getting rid of the COVID effects that we had last year, the underutilization I was already talking about and the restructurings we were doing last year, which both have heavily reduced so that Continental Europe is coming back to a more normal margin versus previous years. The other segment, just a small explanation here. There are some allocations we are not doing mainly to our Brazilian market because it would impact us with relevant import tax in Brazil, which means we're keeping part of things we would usually allocate to the Brazilian market in our holding, and we're showing it here under others. So we keep it in group. And therefore, the number is growing with the Brazilian team growing. It is a number you would offset the Americas, UK and APAC with usually. But we don't do it. We show it under others. This brings me to Slide #9, revenue by markets. And as the main message, Brazil is now our third largest market, fighting for the second spot against Spain, always good to have internal competition. I think what I like a lot is our distribution. We have a lot of markets, none is bigger than 20%. U.K. 18%; Spain, 15%; Brazil, 14%; Italy, 13%; Germany, 10%, and then it gets smaller, well distributed across our markets. And as you see in the percentage delta column, we see growth in nearly all countries. Only 3 don't have growth, which is Spain. The only impact here being Deutsche Bank, where we see the main reductions in the group is in Spain, and we see some growth in Germany and the U.K., but Spain is hit by Deutsche. Second market that is not growing currently France with minus 4%. This is mainly one project, one client, insurance client [indiscernible] project implementation of Guidewire is slowly coming to an end. And the new client is starting a bit slower. So we're not completely compensating. But we're optimistic that next year, we will still show the same revenues, although one client reducing and one client really ramping up. And last but not least, a minus in Mexico, minus 9%. This is still the same local sales challenges I was talking about last time. So we are not happy with how we are performing in that market right now. All other markets, strong growth, with Canada and Brazil exceptionally standing out. Going to Slide #10, our 30 biggest clients. Now we are showing them in alphabetical order. We have 4 new entries versus Q3 last year or the first 9 months last year to be precise. There's Beneva which is a Canadian client. It used to be called La Capitale. They renamed themselves after buying another company. Beneva is new to the list. Google is new to the list versus last year, HarbourVest an asset management client in the U.S. is new and the London Stock Exchange made it to our top 30 list of '21. To be on this list, the clients need to have a revenue of at least EUR 4 million in the year 2021. And the full list you see here stands for 75% of the GFT rep. Brings me to Slide #11, the P&L. Of course, it starts on the revenue side with the same EUR 405 million. When we go lower, we see not much information on operating income. That's pretty stable. But the lines cost of purchased services and personnel expenses, which we, for analysis combined because if we don't hire somebody, we use freelances or outside delivery. It is kind of the same use. We pay for it just via different channels, either the service is purchased or it's a salary, then it's in personnel expenses. We combined the 2 and compare it to revenue, and we do that and take out restructure costs last year. We have improved by 1 percentage point, 1 percentage point on EUR 400 million is EUR 4 million of profit contribution from those 2 lines. So we are improving. But at the same time, I'll come back to that on utilization. Onboarding also causes some inefficiencies. Other operating expenses is what is really standing out. The number is pretty much the same as last year, although we have 24% revenue growth. Of course, it helps but you can't do many marketing events. But at the same time, we are also heavily pushing on facility expenses, on workplace expenses and reducing cost here where we can, and it is working out nicely. The other line that is improving is depreciation and amortization, where we do see lower amortization, as we have not done major M&A in the last 2, 3 years, and the older ones are coming to an end. And on depreciation, we see here lower office costs because IFRS 16, the office rent is now depreciation. And as we are reducing office space, wherever a contract ends, we are seeing this working in the depreciation and amortization line. Last but not least, tax rate, 25% right now, and it's pretty much the number we see for the full year. Going to Slide #12, cash flow analysis. While in a nutshell, financing structure is very solid. When we start -- at the very left in the graph, we started the year with a net cash of minus EUR 31 million. So all liquidity minus all bank debt, minus EUR 31 million. Going to operating cash flow, we see a plus EUR 31 million after 9 months, a solid number. Working capital building up but high profitability supporting it. When we look at the cash flow from financing activities, we see minus EUR 31 million, while we simply paid back debt to reduce it. And when we look at the investments, this is -- as we didn't do M&A this year, it is only investments mainly in equipment for those EUR 9 million. And this all combined leads to the net cash, the very right number in the graph of minus EUR 16 million at the end of September of '21, which is 0.25x EBITDA. I think that's a very comfortable debt at the moment. And it will improve further until years end. Probably, we're going to be close to 0 when we end December. Moving forward, Slide #13, balance sheet. Well, not much to discuss and tell you just as I usually say, the second -- on the left, the second bullet point of noncurrent assets is benefiting from the reducing facilities because they are shown as noncurrent assets according to IFRS 16. If you end rent contracts, this asset reduces. At the same time, what stands out on the equity side is that our equity ratio is benefiting from the profitability and has now improved to 35%. But if you have more questions, please ask later. This leads me to Slide 14, employees. Employee numbers stands at 7,000 -- nearly 7,300, with 27% up versus a year ago, 27%. Revenue growth is 24%, which indicates that we are mainly hiring in the lower cost and lower revenue countries, Brazil and Poland. And that's true. That's where we have hired most of the people. And this is just the reason why revenue is growing somewhat slower than employee numbers, but salaries are also growing slower because we are hiring in those lower-cost countries. When I look in the middle of the graph, we see the utilization at 91%. It looks like it's completely unchanged to Q3 last year. But inside, there are some changes last year. We were still a bit COVID impacted in the third quarter. And this year, well, of course, there is no COVID impact anymore. But hiring, you look at the left, 480 people in a quarter also leads to some inefficiencies on utilization. You onboard somebody, and the time from he joins the company until he's first billable on a project is somewhere between 2 to 8 weeks depending on which market the person works in. And this is, of course, hurting the utilization. People are on board, but they are not yet billable to the client. Therefore, hiring phases like we have right now do not optimize the utilization to the max. But we're happy with the 91%, and we would not want to grow. Therefore, this is hopefully a situation we will have for a couple of more quarters. Attrition on the right side, 16% unwanted levers of our total workforce trailing 12 months, meaning we look back 12 months and then the average 16%. Of course, this is still benefiting somewhat from the COVID months that we saw where attrition was lower. But the 16% already compares quite well to the attrition we had before the crisis, which was 15% to 16%. And truth told, if I would only look at the attrition in Q3, numbers closer to 20%. And that's probably the number we will have to face in the year '22, an attrition of 20%, maybe even a bit higher because the market in many regions is really hot. Demand for IT resources is very high. Of course, salary inflation will be a topic we can talk about it a bit later. But on the attrition side, we are feeling the heat as well. Well, as you see on the very left, we are able to hire. Therefore, we're not complaining. We're playing the game as well. So the attrition -- our hiring is attrition somewhere else or people coming from university, but attrition is still heating up. On top, we have roughly 1,100 freelances on board, which is far higher than the year ago, as the last bullet point. You don't see it in the graph, 1,160 freelances today versus 700 a year ago. So you see that growth comes not only via employees, we hire, but also via freelancers, which brings me to Slide 15. Our outlook for '21 is also the final slide before we go into the Q&A session. We have updated our numbers on October 21. Revenue is now EUR 560 million. Last guidance was EUR 550 million. So on the revenue side, not much impact. On the EBITDA adjusted, last guidance was EUR 62 million. We are now at EUR 65 million. So we increased by EUR 3 million. And this goes all the way to the right and EBT is now EUR 40 million. Last guidance was EUR 36 million. So we see profitability improving with the ongoing strong growth that we see on the revenue side and even margins going up a bit stronger than we had initially thought after the Q2 numbers. Now I'll focus on the last bullet point, outlook for '22 as we already have visibility for the next year, and we compared it to market expectations. We felt the need to also inform the market on October 21 about what we see happening in '22. And that's why we already gave some guidance on revenues and profitability. Usually, you know us, we only do that in March with the final numbers for the previous year. This time, we ran a bit faster. We are expecting revenues to increase by approximately 20% in the year '22, and we see margins at 11.5% for EBITDA adjusted and 7.5% for the EBT. What will be the challenges of '22? Well, of course, find the clients, right, manage the 20% growth. I think we can truly see them. Second, get the people. Get the people will be the main challenge. If we would have keep more people today, we would already write higher revenues, but you can't just do magic. You have to onboard them one by one. And this is what we have to do in '22 and fight a, attrition; and b, salary inflation. And then last but not least, push salary inflation to the final client. So this is what will be interesting for '22. It will in the end, define the final margin. I think everybody in the market is currently reporting on that. We believe we are in a good position with all the new technologies that we're working on, which at least support getting higher margins over time. And then at least being able to compensate, maybe even overcompensate for the salary inflation that we are seeing in front of us. That's what we see for '21. That's my first outlook for '22. Thanks for being proud and now ready for your questions.

[Operator Instructions] The first question comes from the line of Sven Sauer with Kepler Cheuvreux.

Two quick questions from my side. The Deutsche Bank or the top -- the revenue from the top 2 clients in Q3 was very strong, and you mentioned that you were not expecting this. I was just wondering what kind of projects are compensating for the decline with their business?

Okay. Shoot number 2 directly, I'll do them...

Yes. okay. And the second question would be, if you could provide some color on what these higher-margin projects look like? I mean, are they related to AI, cloud? And maybe a third question also is you mentioned that you are hiring lower-cost employees, but at the same time, seeing a structural demand -- increase in demand for higher-margin projects? Is this just the typical problem regarding the war for talent? Or how does this match?

All right. Okay. Let's start with Deutsche. Yes, Deutsche was okay-ish for the year, even good compared to our initial expectations. What kind of projects are benefiting. We are taking part in the Deutsche Bank cloud initiative that they have started. So that is helping us. We see the investment banking arm of Deutsche rebounding. And therefore, the revenue, especially on the Deutsche Bank, U.S., U.K. APAC side, which is mainly investment banking driven, has stabilized on a higher level than we had expected. And last but not least, and that is our only zone, which will change in '22. In Spain, we will, over time, be replaced by the Deutsche Bank hub in India by their own hub. That's the plan since 3 years, and it's happening. But again, in '21, it wasn't happening as fast as expected. But this will happen in the years '22 and '23. So therefore, we will lose another EUR 10 million on Deutsche side for sure. But again, it doesn't really matter anymore because we easily outpace that loss with all the other clients. Higher margins in tech. Well, the high -- we always call the new technologies is everything around agile development. It is everything around data and especially cloud. Cloud is the topic of the moment. As we see it, as always, it's not 100% of our growth, but it is a big driver. And all clients have some kind of cloud migration started. It is AI. It is starting to be more distributed ledger blockchain, but those 2 are still smaller. The current main driver is cloud. However, after COVID, digital is sexy. So every banking process is being digitized again and with more focus than in the years before the pandemic. And therefore, it's not only cloud, right? That growth is so broad in the banking and insurance sector is because digitalization is truly back and our clients are investing in it. Cloud is pushing it extra. And if you go for cloud, they are the most attractive margins right now because the number of people available in the market who have a cloud skills and the banking process know-how, they are limited. You will find banking know-how, you will find cloud know-how. The combination is quite scarce, which is why we do have to build those experts from scratch usually, and you can't even hire them easily in the market. Lower-cost employees. Well, in the end, you saw that our Brazilian market, for example, is hiring. Here, we are growing a lot of people, but it's also growing in revenues in the domestic Brazilian market. So it is like-for-like. Our revenue is growing a bit slower if we higher Brazilian than if we would, for example, hire Germans and bring them to projects. But the cost per head is also the same. So it's not a big near show move at the moment. The Brazilian hirings are mostly domestic, and they just bring the revenue per head down in the GFT Group because it shifts our focus -- our main market focus somewhat to a lower-cost country. Lower revenue, lower cost at the same time, leads to the same margin, but you need a bit more people. The Polish growth is different. The Polish growth goes mostly to U.K. and Asia, and there is -- it's full nearshore growth, where we are leveraging on. And this trend will continue, although I believe the Brazilian growth will maybe reduce a bit in the years to come, and we will focus more on nearshoring Brazil into the U.S. in the coming years. Because it's just where the higher margins at the moment. I hope that helped.

The next question comes from the line of Knud Hinkel with Pareto Securities.

I have 4 actually. Starting with the growth outlook for '22 and beyond. So I guess if you guide for 20% growth in '22, you got the projects and the visibility on the projects and you've got the capacity that you need. So my question would be what happens after that? I mean your service on high demand. But the question is whether you can secure sufficient capacities, i.e., personnel keeping up the growth rate. So as far as I know, every IT company is hiring and probably the capacities are not endless in the market. So maybe you can -- you already said, okay, you expect some wage inflation and so. But the question for me is really, can you keep up the double-digit growth rate even if you got the project, but it can secure the capacity you need for that? The second question is you discussed already a little bit margins of different projects. My question would be does the margin follow the technology or the industries, so meaning -- so in general, you earn, let's say, 30% on a cloud project and less on other product stuff like this? Or is it completely due to the market environment of the project, meaning. Is there -- is it for instance, a small client that you want to grow in the future, so you accept lower margins or the competitive situation in the market, so that you need to be a little bit lower. What determines the margin that could be -- on a project that would be my second question. Third question would be -- yes, you are very, very beneficial cash flow profile. Cash is rolling in. You pay back debt. But at some point in time, you will be net cash. So I remember that you have some M&A ambitions. So a bolt-on acquisition maybe you can update -- give us an update here and maybe discuss a little bit if you -- coming back to the capacity question -- the personal question. Is it also something where you can maybe secure the workforce that you need to go for that growth that you envision in the coming years? And my last question, just a housekeeping question. Very low tax rate, 25%. Is that something that you see also for the coming years? Or what is your expectation here on the development of the tax rate? That would be my 4 questions.

All right. Yes, there was a lot of questions. And I was aware of that when we give '22 numbers, the first question will go for '23. That's a small figure, and you grab the arm, of course. But the question is valid, can we can keep the pace? Can we get the people? And as I said, it's already the challenge for '22. I think in the past -- also this year, but also in the past in the growth phase of 12 to 16, we always proven that we're able to do double-digit growth over a longer period. And usually, it didn't end because we were not willing to do it anymore, but because the market trends went a bit weaker. So yes, we believe we are able to do it. We are well suited for this. We have a broad international base. So if one market is not working at least, we have the other markets to compensate. We are not in the risk of failing in one market, will fail our full group guidance. And that is very important. When you look at what young people want to do, if they have an IT degree these days, they want to work on attractive projects. And that is what we're focusing on. We're focusing on the new technologies. We're closing in on them being 45% -- nearly 50% of our revenue, and this is what people want to work on. They don't want to work on legacy Java projects if they can make a choice. Not everybody can make a choice, right? But if you can, you want to work on the cloud project, on an AI project, on a blockchain project. You want to work nearshore, not only for your country. And here, we are quite well positioned to attract talent and keep them because of the focus that our business has. Does this mean we will for sure succeed. Well, let's see how crazy the market goes. Maybe it also softens again a bit at the end of '22 and then the hiring is no longer that much of an issue. We will learn that on the fly when we go through the quarters next year. But from today's perspective, we are ready to get the people for the growth. It was a struggle this year, but not a problem. We succeeded and we delivered. There is kind of a natural end for service companies to grow at somewhere 25%. That's when it really hurts. Because you need all levels and you have to suddenly promote people who you might not want to promote in a normal situation into management positions. Therefore, there is a limit or you risk quality of your service, but we haven't reached it yet this year, and we don't see us in that risk next year. Margins. Do margins for low tech. Fundamentally, yes, they do. You have a far better chance of improving your pricing when you go for higher tech business for scarce -- for business where the resources are scarce and therefore, sought after and highly paid. However, at the same time, you work for -- we looked at our top 30 list, right? So the names there are pretty stable. With those bigger clients, you have a price list defined at the beginning of the year, and this might even include your new tech people. You try to add a second price list for those value-added services as cloud. But as you can already hear, that's already negotiating with the client, with procurement. So we have to make choices every day. Do we send our very expensive people to existing clients, where we have a very long-lasting relationship. But there, they will only contribute a normalized margin like everybody else who's working in the more boring Java projects or we do we take the Superstars and cloud people to new clients where we have the chance of getting higher margins. Currently, there are only very few projects where we need to come in with lower prices to get new clients. We are going with the new technology to new clients, and there we get higher prices than an average in our existing clients. So that's the challenge we currently face. Existing clients with existing price lists, how do we get cloud people better price there, but then we want that relationship to go on for the next year. So we have to deliver some high-tech skills to those clients as well. At the same time, with new clients, we could get even better prices. But these are new clients. We would have to build them and ensure we get the same client relationship that we have with our today's top 30. This is the challenge we really face. New tech can get higher prices, but not always in the existing clients. So there we have to make choices. Cash flow. On M&A, of course, M&A is a topic. We are constantly tracking the market, as the stock market indicates also the market for private health companies has increased in price. The multiples have gone up. We had to say no to some of those prices in the last 2 years, but we are still active, and we believe we will find decent value for good multiples below 10x EBITDA, and we were negotiating and hopefully finding. Nothing this year, but hopefully, for '22, we will be able to already announce another acquisition. We're working on that. It's a binary game, right? It's 0 or 1. You can't do a half M&A. And therefore, it's always a bit hard to predict will it work out or not. But we are still on the M&A search, and we're doing that in all our markets. We try to push our technology, sometimes our market presence in regions where we are. And yes, it might be an option to also do M&A for capacity reasons. Usually, the companies we buy, they are not in a bad situation, right? They are not restructuring cases. So they have people who are busy and they create the revenue that they generate. So just by buying them, we don't get any additional capacity. But maybe it's a hub. It's a new way, a new location where we can go to market and find people and maybe do that even in an area where there are more nearshore resources. So yes, that is an option. Although in the past, we have not gone down that route. We have always done the hiring part by ourselves and acquired companies that add clients or technologies. So, so far, that was our approach. I wouldn't rule out in the current phase that it is an acquisition that focuses on capacity. And last on the least, low tax rate, yes, we always indicated it will be between 25% and 30%. That's quite a broad range. But it always depends a bit on what incentive schemes countries put up for the business we do. What kind of research and development projects are tax subsidized. And there's a lot of subsidies out there. We Germans just don't know it because in Germany, there's not that much. But we're working on that. And it always drives our percentage up and down by 2 to 3 points. And currently, we're in a good position with 25%. If that changes a bit, like in the U.K., for example, where we are benefiting a lot, it might again go up towards 28%. So that would be the area of tax rate I'm expecting for next year, 26% to 28%. I hope I answered all the questions.

[Operator Instructions] the next question comes from the line of Andreas Wolf with Warburg Research.

Congratulations on the quarter, was really impressive. A couple of questions also from my side. So with regards to skill shortages, do you also see increased flexibility on the client side with regard to daily rates? And the second question would be related to nearshore capacity locations you've kind of alluded to this question also, this topic already in your previous answers. But do you see increased competition, let's say, coming from, for example, German IT service companies, those are moving nearshore in order to be able to cope with the staff shortages or skill shortages in Germany and rather low price flexibility on the client side. And you've already mentioned M&A, would you add new regions? Or would you basically expand capacity if you're acquiring capacity, of course, in existing regions? And then quickly on the verticals that you are serving. So that would be my third question. Currently, you are obviously busy with handling the growth and demand that you are facing. Is there a certain threshold or certain point where you would consider adding further verticals? And could you also talk about profitability of the 3 verticals that you are currently serving. So is it about the same? I would assume, industrial is lowering profitability as it's still smaller in scale compared to the other 2.

First of all, thanks very much, for your words on the quarter. Indeed, we do agree. Yes, internally, we have to talk about it a lot. Are the clients flexible on rates? Well, as I said, yes, they are. Although during the year when you have predefined prices, which you usually do in the first quarter or even at the end of the year before, it's always a bit harder to renegotiate pricing. And then you have salary inflation that really kicks in during the year, and we saw that this year, right? Inflation really kicked in during 2021, not at the beginning of '21, where we were all still sitting at home in lockdown. And that wasn't a good moment, then the vaccine came and things opened up. So that was a challenge, I think, for everybody in the market that wage inflation started somewhere in Q2 and is ongoing. While your price negotiations with your clients, and they will always come back to your negotiations and say, "Hey, we have a price for 12 months." And then you start renegotiating and being creative about new roles, new technologies, new value, et cetera. For next year, it will be easier because the renegotiations will come again, and we are all aware of the wage inflation. So we do see a wage inflation, but we also see clients ready, willing is not the right word, but they will have to discuss prices with their vendors. Because if they don't, they will not get the top profiles. Because the prices, if you go to new projects, can be far higher. And therefore, existing clients also need to adapt to that. They have their own cost base in IT, which will also change with the wage inflation as does for us, vendors. And therefore, we do see clients flexible, as flexible as they want to be on rates. Yes. Nearshore locations, more competition, not really. So we have seen competition, for example, in Poland for the nearshore trend, more coming from the further Eastern players than from the German players. So we saw them coming. Competition over the globe is somewhat getting more global for English-speaking resources because your office doesn't matter that much anymore. And therefore, we do -- we have all those stories of crazy offers to our people in Brazil, in Costa Rica, in Vietnam, in Poland, who then move to -- maybe even one of the FAANG companies, right, of the Google, Amazon, et cetera, Microsoft, who are just able to offer higher prices. It could be our clients, the banks, who are offering strange prices because they don't care that much anymore where people sit. And that makes pricing for employees, more flexible. It's an employer market at these days. And therefore, the competition is getting broader, but German players in Eastern Europe, we haven't really felt yet. Maybe a bit more inside Germany than from nearshore. M&A, new regions currently not planned. We now cover the regions that we cover. And Asia is now included. Therefore, could we do an M&A in Asia? Yes, I wouldn't rule that out, although our current track is we started with nothing in '18 and this year, we will be above EUR 20 million and continue to grow at very strong growth rates in '22. It's all organic, and that's working nicely. We're building our own nearshore location in Vietnam. It's today 120 people. We started at 0 at the beginning of the year, and we can't even travel there. So you can see it's a real challenge building a nearshore center. And Vietnam is completely closed down to the outside world, 2 weeks of quarantine as you can imagine, and only the MD of the company. So one of our guys was able to travel very limited, and we want to take that organic for the time being. Therefore, M&A on regions, not so much. It's more inside the regions we are -- in countries we are today and not currently going into other regions, which there's not so much left anyway, right? It would be the oriental piece, it would be Australia, it would be Africa and the other markets we more or less serve. And then busy handling the growth threshold to add further verticals? Yes, you're right. We're currently really busy handling the growth. So even the markets that are heavily working on banking and insurance, which is, for example, the full Americas region. We have a hard time going to industrial clients because growth on those existing clients, new clients and banking insurance, are eating our sales capacity up. Therefore, even the industry piece is currently focused on Europe to expand it and not so much on APAC or the Americas, therefore, we're not thinking of an additional vertical at the moment. If we would, it would, for sure, again, come along with an acquisition as a start. Profitability, yes, you got that right. For sure, the profitability on classic project margins is comparable between banking, insurance, and industry or other clients, depending on the technology. But then on the industry side, we have far higher sales costs at the moment because we want to grow that part of our business. And therefore, the bottom line our industry business is for sure is burdened by our start-up costs, while insurance and banking are both already quite efficient. So your guessing was absolutely right. When it comes to a ranking, it is banking and insurance on the same level. And then the industry business currently more in investment mode, and therefore, with a lower margin. I hope I answered everything.

Just a very quick one. With regard to Q3, was there any particular impact from more working days that we had in Q3? Or was it more of holiday season for the...

Exactly. It was the holiday season, and it was a real holiday season compared to 2020 when nobody wanted to go. And this summer, we all remember, right, I think everybody took a holiday finally and maybe even went outside his house, maybe inside his own country. And yes, therefore, there's no real effect from working days, September was good, but comparable to Q2, for example, we had more working days in Q2 than Q3. But we had more people and due to the growth and the hirings in Q3, therefore, revenue grew by 4%. I think that's why we will see another step in Q4. We have a very strong October, November when it comes to working days, while December is always, of course, a bit [ lowered ] because the last week is missing. Are there more questions?

There are no further questions at this time. I hand back to Jochen Ruetz for closing comments. Back to you, sir.

Thank you very much. So this was the last call this year. I would be off to the [indiscernible]. Therefore, maybe you or some of your investors will talk to me there. Karl Kompe, from the IR side, will be there for 3 days. I'll do 1 day. We have a couple of more roadshows coming up. And then we will report the full year numbers somewhere early March next year, right, with the preliminary figures. Looking forward to that. Have a good time, stay safe until then. And hopefully, see you and hear you soon. Bye-bye.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.