SeSa S.p.A. (SES) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the SeSa Group's First Half Consolidated Results as of October 31, 2021 Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Conxi Palermo, Investor Relations Manager of SeSa. Please go ahead, madam.

Thank you. Good afternoon, and welcome you to SeSa Group financial presentation regarding our first half consolidated results as of October 31, '21. On behalf of SeSa, participating myself, Investor Relations Manager of SeSa; and Alessandro Fabbroni, Group Chief Executive Officer. In the late morning, we made available our corporate presentation for the website on the Investor Relations section that we can follow during the conference call. Today, our Board approved first half consolidated results as of October '21, reporting again an outstanding set of economic and financial results in each group sector with record operating cash flow. Alessandro Fabbroni will introduce the key points of the presentation.

Thank you, Conxi, and good afternoon, everybody. Thanks for joining our conference call. In the first half, we reported again record industrial and financial results, again above our expectations and outperforming again our 10-year grow double-digit track record. On the industrial side, we reported a relevant achievement in any group sector. We enlarged our set of over [ 30,000 ] customers. We developed our digital skills by achieving within the end of 2021, the line of 4,000 employees, up over 20% year-on-year to support digital transformation of enterprises. We set up successfully and a creative value generation new group sector as Business Services one that in full year 2022, we'll achieve 500 employees and EUR 70 million revenues, with a 12% EBITDA margin targeting the line of EUR 100 million revenues and over 1,000 employees in the full year 2023. On the financial side, in the first half, we reported record economic and [indiscernible] cash flow results, with profitability growth rates much higher than our 30% increase achieved in the last 2 consecutive full years. Group revenue in the first half achieved a line of EUR 1 billion, up by 17% year-on-year, with a general improvement in any group sector, 15% increase in VAD, 18% improvement in system integration and 23% growth in business services. Group EBITDA reached EUR 73.3 million in the first half, up by about 40% with an EBITDA margin equal to 7.10%, up over 110 basis points compared to 6% of the last year, thanks to positive contribution again in each group sector. VAD EBITDA increased by 36%, with an EBITDA margin that reached the line of 4.50% compared to 3.90% of the previous year. System integration EBITDA was up by, again, 35% year-on-year, with an EBITDA margin equal to around 13% compared to 11.20% of the last 12 months, while Business Services EBITDA grew by about 130% with an EBITDA margin equal to about 12% compared to 6% over the last 12 months. Bottom line group adjusted earnings after taxes achieved the amount of EUR 36 million, up about 50% year-on-year, with EAT margin equal to around 3.5% compared to 2.70% of the previous year. Thanks to our growing focus on business application and recurring revenues, we reported in the first half, also a strong improvement of our cash flow generation. And we achieved an operating cash flow equal to about EUR 130 million over the last 12 months. Our net financial position as of October '21 was active, that means net liquidity and cash for around EUR 170 million, with a strong improvement compared to about EUR 100 million as of October 2020, while net financial position reported net of about EUR 140 million of IFRS liabilities, was active for around EUR 35 million, improving compared to around EUR 23 million as of October 2020, reflecting the strong operating cash flow, about EUR 130 million in the last 12 months, net of EUR 100 million of investments, most of them referring to M&As. And considering the front of M&As, we continue to enlarge our perimeter operation also through external lines, with 15 relevant M&As since January 2021 that contributed to about 50% of the first half growth at operating profit and in particular HR level, thanks to several relevant strategic new companies that we included in the scope of consolidation in our group sector in the first half. Now Conxi will provide us some more details and updates on M&A programs that, as in the past, also in that period and the review represented relevant for our development growth.

Thank you, Alessandro. Yes, on the first half, we boosted our M&A investment, contributing by 50% of working profit growth in the period and the review and confirming our strong capability to deliver quick and efficient integration of the company that's higher across all business sectors. Since January '21, we closed 15 M&As, with contribution expected in fiscal '22 equal to EUR 150 million of revenue, with an EBITDA margin equal to [ 12% ] and onboarding 550 new employees. Among the main [indiscernible] acquisition during the first half, on the value-added distribution sector, you remember on May '21, we acquired the majority of stake of PM Service, focused on [indiscernible] growing solutions. After the acquisition day, this company is overperforming and [ tanker team ] joining with service technology specializes on refurbished technologies, annual revenue equaled to EUR 100 million, with [ 8% accretive ] EBITDA margin compared to [ 4.5% ] of the value-added sector average, targeting over 1,000 new customers in the fiscal year '22. On September '21, we also applied the majority stake of [indiscernible] with the customer set of [ 2,005 ] from the business partners and [indiscernible] to now of around EUR 50 million, with EBITDA margin in line with that sector average and coverage for mobile enabling technologies and services. Also, software and system integration sector on May '21, we acquired the majority stake of Cadlog Group, a company with annual revenues equal to [ EUR 15 million ], focused on digital engineering across Central Europe. Including this deal, we reached a total perimeter in digital manufacturing of about EUR 50 million revenue, with double-digit EBITDA margin and it's a [ European 200 People Organization ]. On November '21, we acquired the majority stake of [ Di.Tech ], company operating in digital transformation, cloud and security solutions. [indiscernible] on revenue of about EUR 15 million and enlarging our presence in [indiscernible] amid the European manufacturing district. Di.Tech will contribute to our consolidated figures starting from the second half of the fiscal '22. On the first half '22, we expanded significantly the business service sector. For May '21, we have started consolidating the [ 3 acquisition ] in digital platform, [ EFM Informasta ], [ Digital Storm ] and [ Tecnica ], adding combined revenue of over [ EUR 50 million ] at acquisition time, with EBITDA margin over 25% and over 100 experienced human resources. Last week, we announced the 2 acquisitions of [indiscernible] a company with combined revenues of EUR 6 million and double-digit expected EBITDA margin, onboarding [ 40 ] human resources and boosting the business unit of security solutions for financial and utility sectors. Thanks to the quick and efficient integration of the last acquisition, business service sector is targeting for the fiscal '22 revenue equal to EUR 70 million, with 12% of EBITDA margin, involving over 500 human specialized resources, targeting the line of EUR 100 million revenue and 1,000 employees in the fiscal year '22. We will continue to attract and combine our industrial bases as small and mid companies with a skilled human resources and low acquisition costs. Our historical entry value continues to be around 5x EBITDA, with [indiscernible] and [indiscernible] stake acquisition to commit in the long-term, the key people on the target company. As of today, we continue to work on a strong time line of M&A across all sectors with accretive EBITDA margin and long-term sustainable growth strategy. Now I give again the floor to Alessandro for his conclusions.

So as Conxi explained, we continue to stay very focused on our M&A path. In the first half, we capitalized a very successful industrial strategy, with relevant business achievements in each group sector. In particular, I underline the enlargement to digital green in the sector, the strong development of digital security and engineering and system integration, and the successful start-up of new group sector of business services. We reported again record growth rates. That means growth rates, absolutely higher than the 30% 2-year growth of 2020 and 2021. But in particular, we underline as very positive result. The trend in digital skills and human resources management, we achieved within the end of the year, the line of 4,000 employees with about 500 new internal hires over the last 12 months and the churn rate that continues to be under control, around 5%. That means a positive performance despite trend of growing mobility of [ Itra ] that is involving our information technology industry. We continue to work in order to expand our role of leading digital player foreign enterprises, we reinforce our capability to attract skills, human resources and also too, we may benefit in the second half of the year of the start of consolidation of several new strategic companies as data fin system integration sector, [indiscernible] value-added distribution sector and also of the last 2 acquisitions, the company [ CTL and A+ ] in business services sector. I underline again that this new group sector now is targeting total annual revenues of about EUR 70 million, with 12% EBITDA marginality and with a target of over EUR 100 million, with about 12% EBITDA margin in [ 2023 ]. So considering the very positive industrial performance that we achieved in the first half, our great capability to develop and to manage the size of operation, and a strong pipeline of new potential M&As, today, we confirm our positive guidance and outlook for the full year as of April 30, 2022, with about 13% year-on-year growth in revenues. That means a target of our annual revenues equal to around EUR 2.3 billion and about 30% growth in operating profitability. That means a target of annual EBITDA equal to around EUR 165 million. But our main focus, I underline that remains the long-term industrial growth driven by skills and business application investments on the digital enabling trends, to continue to outperform our double-digit growth track record, generating sustainable [Audio Gap]