GFT Technologies SE (GFT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Mohit, your chorus call operator. Welcome, and thank you for joining today's conference call on the preliminary figures of 2022 of GFT Technologies SE. [Operator Instructions] I would now like to turn the conference over to Andreas Herzog, Head of Investor Relations. Please go ahead.

Well, thank you, operator. Ladies and gentlemen, good morning, and thank you for joining our call today on GFT's preliminary figures for financial year 2022. With me is our CEO, Marika Lulay and our CFO, Jochen Ruetz, both will guide you through our numbers and will, of course, be available for your questions afterwards. Some final housekeeping remarks. As the operator mentioned, this webcast is being recorded, including the Q&A session and will be available as a replay on our website in the Investor Relations section. There, you will also find the corresponding slides for download. So thanks for your attention. This should be enough for me. Marika, the stage is yours.

Thank you, Andreas, and good morning, everyone, ladies and gentlemen. I'm happy to be with you again today to share our full year results of '22 and our outlook for '23. While looking back Page 3 2022 was GFT's strongest year ever in literally all key performance indicators. And you can imagine, I'm very proud being able to say that sentence. Well, for 2023, looking a bit ahead, we do see the AI revolution accelerating, and we see that the overall megatrend for digital transformation is shaping organizations as they adapt to new landscape. We will come to our guidance later, but spoiler alarm, we see continued solid growth ahead of us. We have been investing in developing our deep tech capabilities and expertise for more than 6 years now, and especially the last 2 years, clearly showed the payoff. For the full year of 2022, total revenue was EUR 730 million, our best year ever. And this represents 29% year-over-year organic growth, 1 of the highest annual growth in our history. All other KPIs also improved substantially. You can see some on the right side. Jochen Ruetz, our CFO, will later go deeper into those. Clearly, we are beating our own goal of growing twice as fast as the market. The growth last year was actually close to 3x the market, even if we take the positive contribution by currency exchange effects out. We grew in all our markets, in 7 of them, we grew by more than 30% in sales. And in North America, our focused markets, we even grew by more than 50%, which was 1 of our goals to expand our market share in the largest market of the world. Now let's come to the growth drivers, and you can see them on Page #4. One of the biggest growth drivers are the cloud technologies. You see that the portion of isolated solutions using new tech like AI, DLT, blockchain or in Metaverse remains just a little bit below 10%. We call them smart technologies. The bulk of work we are doing is actually in the area of digital transformation. Obviously, we also use some of the new tech in digital transformation, but not as related but rather as big change of the landscape of the client. So for example, an isolated chatbot, we would report under smart technologies if it's part of a bigger digital transformation program of a bank, we would report this under a digital transformation. So here, project volumes are much bigger and usually other projects take a bit longer. Our share of business around platform services has reduced, which is good. Although, it's usually more a type of recurrent revenues. It's also more price sensitive. And especially in terms of inflation, our ability to be more flexible in pricing is key and that clearly is possible in the area of digital transformation as this is more project based. Now let's go to Page #5, a bit deeper, especially on 1 of the growth drivers, which is cloud services. We have invested in the last 2 years in building our own cloud services framework. It's a methodology, which enables us to structure the project life cycle so that we can achieve faster results. That is clearly appreciated by our cloud partners who want to achieve their consumption rates and it's appreciated by our clients who simply want to get to the benefits, be it data analytics or reducing operating cost. I'm really excited about our 52% growth rate in this space. And the auto cloud market grows around 25 percentage. So also here, we reached our goal of growing 2x as fast as the market. The next growth driver is everything around digital transformation for banks, and I brought here with you a special, let's say, storyline around our partnership with Thought Machine. Clearly, digital transformation in the banking sector is our sweet spot. Overall, we grew by 27% in this sector. And if we go 1 level deeper, we see a 45% growth in the digital transformation projects in that sector. We achieved this by our unique combination of focus and diversification. It may sound contradicting, but it's not. We are setting trends in next-generation core banking solutions around the globe. Our international reach and our focus on financial services enable us to catch a trend in 1 geography and move it quickly to another. And especially our partnership with Thought Machine, who provides a cloud-native core banking solution is approved to this. You might remember, we started 2018 in Asia with Mox Bank in Hong Kong, then we delivered more digital banks like Trust Bank in Singapore and Rajhi in Malaysia. Rajhi is the digital bank of Al Rajhi Bank. The first Islamic banking. And then we won also BBVA in Spain, JPMorgan Chase in the U.S. and even the biggest digital bank in India, IDFC is asking for our services. Although, they are surrounded by the largest IT population of the world. They called us for their services, for the services around digital banking and to support them. And I think this talks about our quality and delivery and are absolutely world-class leading expertise. Needless to say, and I think it has been presented in some of the other earnings calls. Several industry analysts have rated us in 2022 on the famous upper right corner where everybody want to be, and they clearly see us as a leader for digital banking. Now I hand over to Jochen Ruetz, who will now guide you through our financials.

Thank you, Marika. Let's directly jump to Slide #8 with the key figures. The revenue number was already given, EUR 730 million, and I'm now going through the bullet points on the right side step by step EUR 730 million is 29% up versus 2021. Of the 29% roughly 7% are related to FX effects due to the weakening euro throughout the year 2022. The order backlog is up 18% and gives us a good start into the year 2023. On the EBITDA side, we see that in '22, the EBITDA adjusted and the EBITDA itself are the same numbers. There was no adjustment as we only adjust for M&A so far, EUR 86.08 million, up 33%, the adjusted number. I'm not going through the smaller bullet points on the right side. We didn't have any effects from digitalization. It was kind of the same digitalization as in '21. Restructuring measures were also pretty much on the same level as in '21, so no gaps here. But we had tailwinds from FX. This generated a profit of EUR 2 million. And you see in brackets in the year before, it was minus EUR 1.7 million. Same's true for share price-based effects in the valuation of management remuneration. This was positive by EUR 2.2 million because the GFT share price reduced throughout the year 2022, all the way into December. In the year before, '21, we had a steep increase in share price. So the same effect for '21 was minus EUR 4 million. Overall, we saw in '22 a disproportional EBT growth. The margin rose from 7.1% in '21 to 9% in '22, but thereof, 0.5% are related to those 2 effects I was mentioning, FX and share price, 0.5%, which are not recurring. So the operational improvement was truly to 8.5%. We saw an increase in the tax rate. It's now 30%. I'll come back to that on profit and loss statement. Let's move forward to Slide #9. Diversification among clients and sectors has further improved. I start on the right side of the slide and looking at our sectors first, the banking business grew by 27% in '22, all the way into 72% of the GFT business. It's still the core of our business, our true DNA with the banks. We saw insurance pick up 44% throughout '22. It's now representing 18% of the GFT Group revenues. And last but not least, the sector, industrial clients and other clients grew by 21%, it's now representing 10% of our total business. Now moving to the left side, the client portfolio. We do see 1 client on the very left with more than EUR 50 million in revenues for GFT. Well, you all know it's Deutsche Bank, our biggest client for a long time. It has grown in '22 slightly. However, the share of the total business was 14%, down 2 percentage points versus '21. So client concentration has further reduced in the year 2022 with Deutsche Bank. We did see a strong increase in clients above EUR 10 million, but excluding Deutsche Bank. So only other clients above EUR 10 million, they now represent 45% of the overall GFT revenue, an increase of 8 percentage. Today, it's 20 clients in this group. The year before, it was 11 clients. So we see a strong trust of our clients in our ability to deliver, and they go with big programs with us and more and more as the number of clients is growing. Same is true for the group of clients above EUR 5 million, 15 clients in year-to-date. It was 11 clients in '21, also an increase, although the number 15% representative of the GFT overall revenue is constant versus '21. The client is above 1 million, but smaller than 5. They have reduced. Well, we saw them all move to the next groups. And therefore, we saw a reduction to 17% here, which will probably pick up again in the year '23. And the funnel with clients smaller than EUR 1 million is constant at 9%. But for us, important because this shows the scale we're able to generate our clients above EUR 5 million, where efficiencies and sales and delivery are very high and the trust of our clients to hand over to us big investment programs is proven with this track record. Moving forward, Slide #10. Let's look at the quarters one by one. In Q4 '22, we see revenues of EUR 188.2 million. That was an increase of 2% versus the previous year. On the EBITDA side, we see a small reduction of 4%, mainly because the Q3 numbers had most of the already mentioned FX and virtual share price effect. So Q3 was somewhat overstated, Q4 was more operational. The truth is those 2 quarters had kind of the same profitability if we will take out the extraordinary effects from share price and FX. Comparing year-over-year, we see Q4 versus Q4 '21 growth of 17% on the revenue side and on the EBITDA side of 22%. And a brief heads up on the outlook, Q1 '23. So the current quarter will probably be slightly above Q4, but we will not see very strong growth in this very first quarter, we see growth picking up throughout the year '23, but Q1 being quite close to the fourth quarter of '22. Let's move to Slide #11 and look at revenue by segment. Americas, U.K., APAC, by now our biggest business segment inside GFT has shown dynamic growth overall, 44% in total. It was driven by our Brazilian U.S., Mexico and U.K. banking markets plus our insurance clients in Canada. When we go a bit deeper, the organic growth in that segment was 32%. And here, we see most of the FX tailwinds as FX represented 12 percentage points of this growth as all of these currencies have more or less improved versus the euro in '22. Looking at Continental Europe, while there is no FX effect. So our organic growth is 9% with the strongest market being Switzerland, which has grown by 35%. So overall in the group, we saw growth of 29%, of which 7% are related to FX tailwinds. Moving forward, Slide #12, which is the earnings by segment. And I focus on the right side, the EBT. In Americas, U.K. and APAC, we have seen a significant improvement in the EBT is up 87%. It is reflected in the strong growth on the sales side and the efficiencies we're able to generate with that in those markets. Here, the FX tailwind was roughly 21 percentage points of the 87%. Looking at Continental Europe, we're up 8%. While revenue was up 9%. EBT is up 8%, so it is in line with operational performance. So overall, on a group level, we saw EBT grow by 65%, of which 12 percentage points are related to FX effects. So let me add that from Q1 '23, so from the coming quarter onwards, we will sharpen our segment reporting to you guys, especially on profitability. As you will later see in the outlook, we now replace the EBITDA adjusted number for an EBIT adjusted guidance. Three simple reasons for that. First of all, it's a small change. Only depreciation is added. We see major efficiency gains in our depreciation line, mainly for only slowly growing our office rent cost because we see many people working from home. So far, these efficiencies were not adequately visible in the EBITDA adjusted KPI. When moving to the EBIT adjusted, we can give better insights into GFT's improvements of efficiency and scale. Second reason, we see that many of our international peers move to EBIT adjusted guidance over time. And to us, it seems to be the better KPI to explain operational performance. And third, we see that you, our analysts and investors are more focused on the EBIT and EBIT adjusted. So we listened, we learned and we will change this from '23 onwards. Let's move to Slide #13, revenue by market. Brazil takes the lead as the headline says, it's now 19% of the GFT business, but overall, 7 markets grew by more than 30%. On the right side in the table, you see the different growth rates outstanding Brazil, U.S., Canada, Mexico as big markets. But let me mention again, all of these had some tailwinds from FX on top. So these rates in local currencies, these growth rates in local currencies would look somewhat smaller. Going forward, Slide #14, clients in '22. We have new qualified clients, but let me come to that later. First -- the first bullet point, we see a further increase of clients above EUR 5 million and EUR 10 million annual revenue, something we already indicated on Slide 9 on a euro basis. Now here on a number basis, the clients above EUR 10 million are now 21. So it's proving our land and expand strategy and reflect the higher trust of our clients and our competence. On top, we saw 44 new qualified clients, they mostly turn up in the group of smaller than EUR 1 million. These are clients with whom we didn't generate any revenues in '21, and we generated more than EUR 100,000 revenues in '22 so we call them qualified new clients. 44 this year, it was 46 last year. We're happy with this number and the overall client distribution from today onwards. Go forward, Slide #16, income statement. While not much to talk about revenue up 29%. It's coming up here again. Let me mention cost of purchased services. Again, there's always freelances 27% up versus the previous year. Personnel expenses, 26% up, both growing more slowly than the revenue growth. We see the depreciation that we move below the EBITDA line, the depreciation and amortization line only grew by 3%, so here, we do see strong economies of scale. We are not using more office space or only a little more office space while growing our people by more than 20%, revenues by 29%. People are working from home. There is some additional cost related to working from home, but they happen in the other operating expenses. It's usually things like more hardware, double keyboards, double monitors, lunch vouchers, et cetera. So these things now pop up above the EBITDA line, but the efficiencies happened in the depreciation line. Interest for the first time in years is positive. So we had a turnaround of interest rates and our net cash position. So that has improved to the positive and tax rate, I mentioned it, it's 30% today the distribution of our profits among our countries goes into higher tax countries. So we do see that the 30% will be also the tax rate for '23. We hope to be below, but we are generating more and more profits in countries where tax rates are higher. Plus in most of our countries, we have now used up all of our carryforward tax losses. So that's why we are now roughly at 30% also for the future. Move to Slide #16, cash flow statement. And now starting on the very left of the graph, the net cash position at the beginning of the year was EUR 1.9 million and at the end of the year, which is on the very right of the graph, it was EUR 35.7 million. So we generated roughly EUR 34 million in net cash in the last 12 months. And where is it coming from? Where did we spend it on. Operating activities, cash flow was EUR 57 million. That is quite strong. Most of it came in the second half. You remember, we talked about this in Q1 and Q2 that working capital was picking up because suddenly clients were again negotiating payment terms paying later kind of the behavior we have known all the way into 2019. Then came the minus -- the negative interest rate years 2020 and '21 when clients did pay us very early, surprisingly early. And since '22, we're back to normal, I think we swallowed this working capital hike in the first half. And since Q3 onwards, cash -- operating cash flow is back. And so overall, a good operating cash flow in the year '22, and we foresee similar numbers now that we're back to normal in '23 -- '22, '23. Financing activities with payback loans, that is the main reason for minus EUR 45 million, plus we paid out a dividend of EUR 9 million. And on the investing side, we only invested into classic hardware stuff that we need for our daily business. There was no acquisition, minus EUR 7.7 million. So these were the drivers which leaves us with a comfortable net cash position at the end of the year of EUR 35 million, we will talk about the acquisition later, which we can easily finance out of net cash and a bit of our credit facilities. Let me move forward to Slide 17. Just quick on balance sheet. The overall balance sheet has grown by 10%, which is in line with business. We do see on the left side that it was mainly the current assets, trade receivables and contract assets, which have grown again, this is in line with business development. On the right side, mainly the equity was growing. It's now an equity ratio of 40%. Let me leave it there and go to Slide #18, where we look at people. The team of GFT is now more than 10,000 experts. That's good news. If we only look at people employed by GFT, it is in FTEs, 8,842 at the end of December, up 15% versus previous year. Most hires happened in Brazil, Spain, Mexico and Poland. In addition, we used 1,275 freelances, that was the number at the end of the year. The average number throughout the year was a bit higher. Utilization, as you see in the middle graph was pretty stable, around 90%, 90.4% as we do round. It sometimes pops up to 91% or 90%, very stable throughout the year '22, just as it has been in '21. Attrition, which is always looking back 12 months, in Q4 was 16%. We see it coming down from the high of 20% mid-'22, which we reported in Q2. We saw the market be a bit tougher on people, and therefore, we currently see them move more slowly, and therefore, attrition is coming down. And with that, back to you, Marika.

Thanks, Jochen. So let's now turn into our outlook. Let's move to Page #22. And clearly, to sum it all up, growth remains our mission. We see AI and blockchain technologies accelerating, we see requests by clients to support them in their digital transformation, which clearly has become mainstream. And hence, we expect solid growth in all our sectors and across all our markets. We are very optimistic for long-term growth because the demand for AI and digital transformation is growing fast. We work with organizations to improve their operations using platforms like Salesforce, ServiceNow, Guidewire. And we also enhance their customer experience for our clients and their go-to-market strategies to improve business outcomes, for example, it's digital banks or new automated platforms for the insurance business. And we also deliver revolutionary solutions through the latest technologies, again, AI, DLT, blockchain, even Metaverse and more. On the resilience side, we have improved our resilience largely, our client structure is well balanced. Our regional geo-diversification compensates for local ups and downs, which can always happen and our clients clearly value our One Company, One Team approach as this provides agility at scale for them. On Page #23, we show you our financial outlook. So we expect a healthy year-over-year performance given the current market. Now we do understand that macroeconomic conditions are uncertain and geopolitical events and supply chain issues have affected some decision-making processes from our clients, especially by the end of '22. We have experienced some long closing cycles during the end of last year and early 2023, but we're seeing initial signs of a positive change on those trends. And as Jochen mentioned, Q1 2023 is a little bit above Q4. So this is all positive. On constant currencies, our growth for 2023 would be at 18%, on current currencies, it is a 16% growth to EUR 850 million. Well, let's not forget, GFT is now operating heavily outside the Eurozone. Hence, FX became a topic and we will continue reporting those differences. We will see further growth on our profitability, EBIT adjusted will go up by 19% to EUR 80 million, and the EBT will go up by 9% to EUR 72 million. We will consolidate the targens acquisition from April onwards. So all numbers included, obviously, any further M&A is not included. Now according to IDC, digital transformation spending will reach EUR 3.4 trillion in '26. And the United States account for nearly 35% of the worldwide total. One of our strategic priorities for the future is, therefore, to grow our market share in the U.S. as we've done last year to continue that as this space continues to expand. And having said that, we will see solid growth across all markets and across all sectors. GFT is well positioned. We have a good size and let me say, personally, it's remarkable to see that we have grown our top line by nearly 20% sequential in the last 5 years. And obviously, such a growth remains being our ambition on the long run. With the dedication of our teams, we are ready to face the challenges and continue our growth in 2023 and beyond. And with that, I'll open our Q&A. We're happy to take your questions.

[Operator Instructions] And the first question comes from Andrea Wolf from Warburg Research.

Congratulations on '22 and the results. My question would be the following. One is, in general, on client demand. You've already mentioned that you see some lengthening cycles. It seems like order backlog also had somewhat slower momentum in Q4. Are there any currency impacts that have resulted in somewhat slower backlog growth? And then also associated with this question is the number of clients with less than EUR 1 million in sales. It seems like the momentum is also somewhat slower. Are there any specific reasons for that? Or is this basically linked to the order backlog question. And then on the guidance, if I look at the '21 targens revenue number, and the fact that you expect EUR 30 million from targens in '23, I think there might be a potential for a higher revenue contribution. Am I missing something, maybe you could clarify on this one. And my last question, then I'm going back into the queue is on SMARAGD. What is the revenue potential associated with this product? Do you need to originally adapt the software, if you want to cross-sell into the existing client base?

Thanks for the question, Andreas. Perfect. Order backlog, yes, you got that right. As you've seen, the guidance on revenue is -- has a 2% gap between current currencies and constant currencies. Current currencies is January average, right, which we are using for the guidance of the year average currencies we would see 18% growth. And that's for sure also a bit -- maybe the same 2% impact on the order backlog as simple as that.

Thanks, Mr. Wolf for your questions. Your first question is whether we have had a stable percentage on clients below EUR 1 million, whether this is also a concern to us. It's actually not, what happens with the digital transformation programs is that different to the past where clients the most of our new business, we started below EUR 1 million, digital transformation project, maybe isolated solution. And then we grew slowly in the client, and it usually took us 1 year, if not 2 years to bring a client into the EUR 5 million or EUR 10 million bucket. This has clearly changed. We now win clients out of 0, and they immediately jumped to the EUR 5 million to EUR 10 million bucket, especially in the area of digital banks. Hence, you see a very strong increase on the larger volumes and a stable number on the lower volume. So it is of no concern to us. Then you asked -- you rightly so analyzed the revenues of targens of '21 and you were challenging a bit our guidance. Let me say it's maybe a bit conservative on that. We just concluded the acquisition. And let's see how it goes, but I would say it's fair to say it's a bit conservative. The revenue expectation for SMARAGD. So, let me give just the data points, around 1/3 of the revenues of targens are around the SMARAGD product. Now this is then around about half of that is pure license business, which is usually purchase license type business and then maintenance fees and the other half is services to implement the SMARAGD product into the client, which is extremely resilient once it is implemented, it's too costly for clients to take out. So if you want to get to know the pure license revenues, it's fair to say it's maybe 1/6 of the total revenues.

And to what extent do you have to originally adapt the software, if you want to sell it, for instance, in the U.S.?

So U.S. is an interesting point. The regulation -- the software is all around compliance, anti-financial crime et cetera. So it's heavy regulatory impacted. And the U.S. has a very different regulation than Germany or the EU. So, so far, targens were successful in selling it to German-based banks who then have rolled it out to all their countries. So it does -- so the software is running in 56 countries outside Germany, but all driven by German headquarter banks. I'm not very confident that we can export that to the U.S., but we can probably export that to other countries on that basis given our international platform. Having said that, every bank in the world has something around anti-financial crime today. Every bank today has something around compliance. So it is clearly -- it's not a growing market. It's a growing market in terms of there's always new regulation coming. And therefore, clients want to automate that and want to make it more efficient, also using AI, but it is clearly a market where we have to push out either legacy applications or other competitors.

The next question comes from Knud Hinkel from Pareto Securities.

I would also follow Mr. Wolf regarding the acquisition. First of all, regarding the EBIT guidance. So also the EBIT guidance looks fairly conservative from my point of view because you earned -- the company earned more than EUR 4 million in '21. Now you guide for EUR 2.6 million for 9 months. Any specific reasons for that, that you expect lower EBIT than in '21? That would be my first question. Second question is that you expect a positive impact on EBIT, but a negative impact on EBT. So obviously, there is some interest in between. Is there anything else we should consider here? Or -- and is it correct to assume that you expect to pay EUR 3.6 million as interest on something. So that would be on the acquisition. And you did not guide on the price that you paid. So if I look at IT service companies, they trade around 15x EBIT is that maybe a good estimate for the price you're going to pay, that would be helpful, if you can say something on that as well. Maybe we just answer first these questions, and I have 2 other questions, if that's possible.

Let me pick them up. The EBIT guidance, yes, maybe it's a bit conservative. Again, we don't know if we close in March or April, so we had to take kind of the best guess. And we will have some internal people booked on this integration project, and that will cost us money, which we are not showing as adjusted because it's internal people, right? We only show external or amortization effects as M&A. Therefore, it's a mixed bag, a bit it conservative and the bid is integration efforts by our own teams. The EBT is negative mainly because there is always in the first year when we first consolidated order book adjustments on profits at hand in the order book, we expect that to be at least EUR 1 million. We expect EUR 1 million of interest impact because of the acquisition and another EUR 1 million to EUR 1.5 million of amortization, which comes to the amortization we already have. That's the gap between the EBIT adjusted which is positive, EUR 2.6 million, and the EBT contribution, which is minus EUR 1 million. The minus EUR 1 million should heavily improve in '24 because the order book only happens with the beginning of the consolidation, the amortization remains. And on the interest side, I believe we will be back to net cash positive at the end of '23. So the interest income of GFT will again look better in '24. On the price -- well, when we said it is in the middle of -- it's a 2-digit number in the middle of the range. It's pretty much in the middle. So a bit cheaper than what you calculated.

All right. And a follow-up on the acquisition. Do you expect restructuring expenses to go up as a consequence of the acquisition because you need to do something in that regard or?

No. That was not the focus of the acquisition that we need to restructure. So we will integrate, of course, back office functions. And over time, we might see efficiencies there. which we will use for growth, but it was the focus going forward on the business side. So no restructuring case here. It is a going-forward business case.

Okay. Very good. Then 1 question on Deutsche, your largest client, it seems to me that we saw strong growth in Q4 because you said it's almost 40%. So I assume a number slightly below 40%. I conclude that Q4 must have been very good. Maybe you can give an indication if I'm on the right track here. And maybe also, if I am on the right track, what's the reason behind that? And secondly, if I'm on the right track again, it seems that the other areas outside Deutsche were not so strong growth in the fourth quarter than in the -- compared to the quarters before. And maybe you can also comment on that. Okay, a lot of ifs and so on, but maybe you can clarify a little bit on that.

No, I'm not getting how you got to those numbers because Deutsche was pretty stable throughout the year '22. Overall, we generated roughly EUR 100 million revenues, the year before it was EUR 90 million. So there was a small increase throughout the year. And the contribution in Q4 wasn't different than in the other quarters. Overall, Deutsche stood for 14%, 14% of the revenue of GFT and the majority of the growth as in all other quarters came from all other clients, right? So Deutsche was growing a bit, maybe 8% to 9%, 10%, but it was all other clients who generated the growth. Also in Q4, no difference. It will be the same in '23. We see Deutsche growing in '23 somewhat, especially as we're strong in the cloud projects that they are implementing. But overall, it will not grow faster than the other clients. The other clients will again outgrow our biggest client.

I think the main reason for the conclusion was that you said after 9 months, Deutsche stands for 30% of total revenue. So that is probably the main reason for the conclusion. But I see there's probably some rounding errors and stuff like that, that maybe...

Yes. And if it was 13%, 14%, exactly, and it's been in the rounding that you might have interpreted too much into.

And the next question comes from Wolfgang Specht from Berenberg.

3 additional ones from my side. First on personnel, do you expect to keep the current growth pace here? Or are you, let's say, do you have the interest to replace more freelancers by own personnel going forward? Second is on U.S. push. Are you planning to invest here in more personnel on the ground to be stronger in pitching for new projects? Or do you have all the personnel already in place? And the third question would be on the progress in the U.K., we know you are pitching for projects more U.K. potentially a larger deal? Is it still in the trial phase? Or has anything, let's say, involved in the direction?

Yes. Mr. Specht, it was a bit difficult to understand you. If I'm not catching really your question, please correct me. So I understood that you were asking whether we will keep our growth rate in terms of hiring people or whether we rather focus on hiring freelancers, is that correct? Was that your first question?

Yes.

Yes. So actually, there is no reason for us to change our strategy. We focus on hiring people because we believe in our own talented people. But as a matter of fact, in some markets, in some countries, there is a push from the people side to rather get freelancer contracts, and we obviously do not decline that. So I think it's a fair assumption that around 10%-ish of GFT's experts are always somewhat around freelancers. But we do not have a special freelancer strategy or the opposite. Ideally, we would like to get them all as employees on board. We just follow here market conditions. The second question I understood is whether our U.S. growth will be accompanied by investing on people on the ground in the U.S. or in other countries. And the answer is it's both. By definition, we will always also increase our people on the ground. But as we keep saying, the people in the U.S. are more the brain, the muscles we are building in other countries, nearshore countries, be it Brazil, be it Mexico, Costa Rica, in some cases, even Poland or Vietnam. As it is a, easier to find people there; and b, it's cheaper and our clients clearly value getting to right price point for a certain expertise. So therefore, you will rather see a disproportionate, let's say, growth on the people side in the U.S. versus the revenue. So higher revenue growth than people growth in the U.S. but then increasing probably the ratios of people working outside the U.S. for the U.S. The last question I really struggled. Maybe you could repeat it was something around the U.K. and a large deal?

Yes, there were rumors in the market that you're pitching JPMorgan for a larger transition project and already doing some kind of trials here. Is there any progress that let's say, could result into a larger deal? Or is it still in the trial phase?

You're referring to the project we do for JPMorgan Chase?

Yes, right.

So JPMorgan Chase is a project to help JPMorgan Chase in the U.S.A. to transform their core banking systems and replace them with the Thought Machine solution. And you are very right that is a massive program, massive. And we have just started last year. And we clearly see this continue. We clearly see this expanding. JPMorgan Chase is now analyzing to implement to do those changes, not only in the U.S. but also in other countries, for example, like the U.K. where they operate in. So we think this is a good source of, let's say, business and project for us in the future.

Important to say it's not 1 deal, right? It's continuously evolving bigger and then you win piece by piece.

And we have another question from [indiscernible] Holding GMBH.

Congratulations on the year. Staying on the topic of U.S. or geographies. How big do you expect the U.S. to become over the next couple of years? Is that your growth focus and Asia, what are your plans for Asia, you're growing in Singapore and Hong Kong. Are you recruiting? Or do you think about recruiting in India at some point? So what is the overall geographic balance and geographic push going forward? And similarly, what is the overall balance between sectors? So how important will financial services be in coming years? And if you could comment maybe on projects or developments in the industrial sector. And the last question, could you comment on or paint a picture of our role in these larger cloud projects. I assume you can't do it all by yourself. So if JPMorgan has a large project, who else is there, the Accentures of the world and what exactly is your role in these projects? And maybe also on the U.S., what kind of clients do you have in the U.S.? Do you have large banks, small banks, what's the quality of your business in the U.S.

Thank you very much. A lot of questions. Let me go through step by step. So on the U.S. Let me give you a long shot number. As I said, overall, the U.S. market is 35% of the world market. So if -- obviously, it is our long-term dream, but long term, really, we're talking 10 years or longer to grow -- to outgrow the U.S. so that we achieve a different diversity in terms of our regions. When you look at our page where we show the different markets, you can see that today, Brazil is 20% of GFT revenues, clearly, it should rather be the U.S., it should not be Brazil. This having said that, we will not slow down the growth in any of the other markets. We simply have put pressure on the U.S. management team to outgrow all others, which they have done already in '22, so they are on a good way, but there will keep going. So just taking high-level numbers. Clearly, we want to outgrow the U.S. We also want to continue growing Asia but not at the same speed. I mean, Asia today is around 5, 6 percentage points of GFT. Let's say, the next step should be 10, 15 points. The max, I could see here, 20%, not more. And this automatically brings you to the conclusion that the markets where we see less growth, still growth, but rather 1-digit growth is Continental Europe. So in our own plan, we see strong growth in the U.S., maybe also followed a bit by Canada then in Asia and then in Continental Europe. And then U.K. is somewhere between, let's say, continental Europe and Asia. In terms of the sectors, we had a high-level plan. You might remember 5, 6 years ago, 7 years ago, we were 95% banking, so not in financial services, but banking purely. We have now moved into a 70%, 20%, 10% range with banking, insurance and the manufacturing market. We do want to continue having a strong focus on financial services, on banking. It is highly valued by our partners, our deep expertise, our international footprint. But probably, it moves into a 60%, 65%, 20%, maybe 15% range. So I wouldn't see big differences. We still see extreme solid and good growth on the banking sector. And again, we have clearly gotten into a leading position there. In terms of our role in the project, well, I would love to say all other are junior partners, yes, we are not alone in big banks like JPMorgan, you're never alone. And yes, you mentioned one of our competitors who regularly shows up. I'm proud to say that the industry analysts have rated us right up above Accenture in terms of expertise and quality. This is why big clients choose us, and this brings me to -- and you said you are not doing everything yourself. Actually, the projects we are winning, the programs we are winning, we are doing them by ourselves. This is what is valued by our clients that we have the deep tech expertise and we deliver in the end. The type of clients we have in the U.S., it's all ranges. We have the true big clients. I mean, JPMorgan is not less than the biggest client -- biggest bank in the world. We have those. We have clients like Ford. We also have midsized banks, regional banks or midsized clients. In terms of the insurances, we usually work for large domestic players, some international ones or kind of international like MAPFRE, but also, again, more domestic -- large domestic players. Insurance market is anyway a bit more nationalistic than the banking market. I hope that helps. It was a bit of a rush through the U.S. If you want to get more details, please shoot.

No, that was very helpful.

[Operator Instructions] And the next question comes from Lukas Spang from Tigris Capital GmbH.

First of all, I would like to come back to the guidance and the difference between EBIT adjusted and EBT. So you explained the effect from targens and that makes EUR 3.6 million out of the difference of EUR 8 million. So where does the rest of the EUR 8 million, so the EUR 4.4 million comes from? I will do my questions one by one.

Okay. Let me pick that 1 up. We believe interest will be EUR 1.5 million burdened, we see the order book from targens. That's all and another EUR 3.2 million amortization from the acquisitions we've done in the past. So overall, amortization, EUR 3 million; order book, EUR 1 million. And we already see the share price has picked up in the first quarter. This will hit us with EUR 1.2 million to EUR 1.5 million. So these are the main contributors to the bridge of EBT to EBIT adjusted.

Yes. Okay. And then you said Q1 revenue will be slightly above Q4 revenue. So it depends on how much you define slightly, but will it be a double-digit growth? Or can it also be a high single-digit growth in Q1?

No, it will be a low single-digit growth. We see that the inflation discussions have burdened Q3 and especially Q4, and this is now also varying into...

Not quarter-over-quarter, year-over-year. So Q1...

I didn't do the math yet. So add 1% to Q4 and then please compare it to Q1, I haven't done that math yet, that should still be a low -- high single-digit growth.

Yes. Yes. Exactly. And then you said you see growth kicking up throughout the year. So you have this 18% higher order backlog at the end of the year. Is this the base of your assumption? Or what makes you confident to reach this increasing revenue growth during the year?

Well, first of all, yes, we have a solid order book. We are engaged in large digital transformation programs, which banks cannot technically, they cannot overstock, but that would really, let's say, they would really abandon their own future. So we have a solid order backlog. We are well positioned, demand is there. The interest -- the raising interest is actually good for our clients. Banks have more profits than the 2 years before. And as I said, digital transformation became mainstream. So we actually expect also to win new clients throughout the year. So it's a solid order backlog and it's a solid outlook. We currently have despite all the challenges of inflation, supply chain, et cetera, et cetera, we have in the world.

Yes, sure. But where comes the higher growth rate during the year. So why is Q1 weaker than the rest of the year?

You meant that, that's actually quite -- sometimes it happens. Usually, January is always a bit of a challenge. And then the quarter ends faster than you think, is always the same effect. So when we started into Q1, as I said, we have seen a bit of longer sales cycles, longer decision cycles on the client side in Q4, hence, instead of starting the program directly on January 1, they started, let's say, on the third week of January or the fourth week of January, we clearly have hired for those programs in Q4 to be ready to start and then you simply suffer a bit in January. But -- so therefore, utilization was a little bit burdened in January. It's already back to normal levels. Normal level for us is around 90% from February onwards. So it's more a Q1 thing than a year thing.

Okay. And then a quick final question. What is your expectation in terms of employee growth. So you said in the answer to Mr. Specht that you are following your strategy to hire further employees. But do you have an internal target in terms of hiring for this year?

No. Honestly, not. We -- the good news is that we hire in many markets that we can hire relatively short term. So to give you a feel, recruiting cycles, for example, in Brazil are 6 to -- 6 weeks, max. So we can simply hire according to our pipeline and how it is turning around and we will simply hire where we need the people. And to give an example, if we hire people on the ground in the U.S., then you need less people for the same revenue as if you were to hire them in Brazil because you're delivering usual services. So therefore, we have no internal goal, which number we want to reach. We rather focus on revenue and EBT and EBIT adjusted as KPIs and hire depending where we have to hire. Yes, in line with pipeline, yes.

But do you take a little bit the pressure on -- take back the pressure or the speed of hiring new people? Or what is your ambition in terms of hiring?

Well, as a matter of fact, the reducing -- the reduction in attrition as Jochen Ruetz has shown health, even that the big tech companies were firing people in the U.S. that clearly made our people think twice, whether they want to leave us or not. Also, the reduction in valuation of startups who then as a consequence of that, also fired a lot of people and definitely did not pay out their stock options, helps our people to value simply cash and we pay cash and bonus every month, every year, quite solid. So the reduction in attrition is a bit the recruiting side because high attrition means you have to replace the attrition plus higher for growth. So that definitely makes it a bit easier. But having said that, it remains being a challenge, hiring the right people, finding the right people. So far, we were able to do that. We are confident we can also do that in 2023. And I would say compared to 2022, it may be a bit easier.

And we have another follow-up question from Andreas Wolf from Warburg Research.

Okay. Maybe quickly on your future M&A strategy. When looking at targens, obviously, the consulting revenue share is pretty high and consulting was also what caused some headwinds when Deutsche Bank was scaling down, i.e., those skills are probably less implementable on an international scale. So how should we look going forward at your M&A strategy? Will it be again more towards coding and customer-specific. Software development, obviously, you can scale up here pretty quickly as you have already explained in the previous question. So what will be the rationale going forward. And 1 of the statements you made previously, I think, was that the U.S. would be an area where you would be interested in some comments around future outlook would be helpful.

So let me -- understood, Mr. Wolf. Thank you very much. So, let me start with your last sentence, yes. It sounds logic when I say that we want to focus on the U.S. to grow that M&A should be done in the U.S. So far, the theory, multiples are extremely high in the U.S. and the, let's say, the loyalty is even worse in terms of working assets. So I would actually say it's rather the opposite given that we can grow very strong organically in the U.S. We'd rather do it ourselves. I mean when we can generate, as we've done in '22, a 50% growth organically while doing an expensive acquisition with all the downsides, which leads me exactly to the point why we have done the German acquisition. We have faced times of slow growth in Germany over the past years as it is a pretty tough closed market and especially the savings banks market is very close. You cannot easily get into. And we still had a high proportion of Deutsche Bank revenues within Germany. So as much as we ease that for the group, in Germany, it was still relatively high. So we took a deliberate decision to reduce client concentration risk in Germany and enter the savings bank sector. So it's a very dramatic acquisition for Germany. Having said that, is it an option to use the consultants who are experts in banking regulatory outside Germany? Yes. But it was not the main driving effect. I would rather call this cherry on the cake as well as the selling the SMARAGD product outside Germany is for us, let's say, it's an opportunity. Let's see whether we can work on that. The fear that hiring people in Germany and then a bank reduces the request and then you have them on the bench, and it's very expensive to change it. It's a fair concern. We are very convinced here with a client a field of targens, where 1/3 -- half of the business is with Landesbank Baden-Württemberg over the current owners and targens is clearly deeply ingrained there. And the other half is with a lot of other banks whom we can also then expand on. I'm actually not very concerned. We obviously analyze that but we are pretty sure that this is a stable business, also maybe not a 2-digit growth -- growing business, but a solid business for Germany. And again, it's a very Germanic acquisition. Finally, to conclude what is our M&A strategy. It's usually to -- and let me make maybe a strange comment. We do M&A to either solve a problem, which we cannot solve organically timely enough or to buy ourselves into an option for growth. For example, years ago, we did an acquisition to enter the Italian market. That was clearly not a problem. It was simply an option to then grow in that market and it paid off. The Germanic acquisition is a mix of buying into an option to grow in Germany, but also to address a client, let's say, a client portfolio, which was a bit risky. So therefore, M&A will belong to your growth strategy also in the future, but we do it very selected, again, to either let's say, ease a certain situation and make the country more resilient or more stable or to buy ourselves into a country. But if a country has a strong organic growth beyond 30%, we rather focus on organic growth.

There are no further questions at this time, and I hand back to Andreas Herzog for closing comments.

Okay. So it seems that there are no further questions left, let me thank you for your participation. And of course, if there are still some questions left open, do not hesitate to contact our IR team. Marika, some closing remarks from you.

Yes. Thank you very much, Andreas. Thank you, Jochen, for sharing the numbers. Thank you, guys, for listening and asking interesting questions. It's always interesting to change deals and also see what is relevant for you and well, let's see how this year goes. Hopefully, another record year for GFT and then speak to you again when we announce our Q1 earnings.

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