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

Good afternoon and thanks for joining SeSa Group presentation. On behalf of SeSa are participating Alessandro Fabbroni, Group CEO; Elisa Gironi, Corporate Governance and M&A Director; and myself as Stakeholder, IR and Sustainability Manager. In the late morning, we made available our fiscal year 2023 corporate presentation on SeSa website that we may follow during this conference call. Today, our Board of Directors has approved the 12-month integrated group results, reporting again and extending check of economic, financial and ESG performance. Alessandro will open the presentation with an overview of our strategic achievements under Italian market scenario.

Good afternoon. Thanks everybody for joining our call. Today we disclose our full year 2023 results with a strong improvement in technological skills, and about 4,700 employees, up 13% year-on-year, and great financial results in terms of revenues, profitability and operating cash flow. We continue to over-perform our long-term track record, thanks to a great organic growth, driven by successful market positioning on the main areas of digital innovation, cloud, security, digital platform, data science, and digital workspace, and our great pipeline of industrial M&As, over 25 in the last 18 months, which contributed for about 15% to full year '23 growth, both revenues and profitability. As of April 30, '23, we closed a 4-year period of record growth, with a CAGR revenues equal to 17% from EUR 1.5 billion in full year '19, up to EUR 2.9 billion in the full year '23. And the CAGR EBITDA growth to 30%, moving from EUR 74 million in the full year 2019 up to EUR 209 million in the full year 2023. In terms of financial performance, full year group revenues achieved were EUR 2.9 billion, up by 22% year-on-year with positive contribution from all business sectors, a 20% increase in VAD sector up to EUR 2.2 billion, a 23% improvement in system integration to EUR 700 million, and a 43% growth in the Business Services sector to EUR 84 million. Consolidated EBITDA reached line of EUR 209 million, up by 25% year-on-year, with an EBITDA margin equal to 7.20%, higher than 7.0% as of April 30, 2022. VAD EBITDA increased by 20% year-on-year, achieved EUR 109 million, with an EBITDA margin equal to 4.9%, flat year-on-year. System Integration EBITDA was up by 25% year-on-year, with an EBITDA margin equal to 12.10% compared to 11.9% in the full year 2022, while Business Services sector EBITDA achieved EUR 11 million, improving by 92% year-on-year, with an EBITDA margin equal to 13% compared to about 10% in the previous year. Bottom line, group adjusted earnings after taxes achieved line of EUR 100.1 million, up by 21% year-on-year, with an [ EAT ] marginal revenues equal to 3.4%, flat year-on-year. Thanks to the group, by our focus on recurring revenues, we reported a steady trend in cash flow generation equal to about EUR 110 million. Consolidated net financial position as of April 30, 2023 was active for about EUR 240 million, compared to EUR 245 million as of April 30, 2022, gross of IFRS debt for about EUR 200 million and net of annual investments in CapEx and M&A for EUR 140 million and dividend distribution and buy-back plan in the same period for the year, EUR 25 million. In the last 12 months, we enlarged significantly our perimeter of operation with more than 15 bolt-on M&As, contributing to full year '23 growth by around 15% to the operating profit level. For the full year 2024, now we expect similar level of contribution from M&As. We already filed and announced the additional revenues equal to about EUR 75 million with an EBITDA margin around 15%. And now, I give the floor to Elisa Gironi, who will provide us an overview of our M&A programs and M&A pipeline and contribution.

As interpreted by Alessandro that several lines contributed in significant way to our historical track record by about 30% in the last 4-year period, and by 50% in the fiscal year 2023 only. Since 2015, we closed over 60 M&As with additional 2,400 human resources and EUR 600 million revenues at acquisition time that became about EUR 1 billion in the last fiscal year, confirming our industrial capability targeted skills across all business sectors. The 18 M&As closed in 2022 and 8 M&As closed since January 2023 are generating a combined business of EUR 200 million revenues with a 17% EBITDA margin and over 900 skilled human resources. We selected the target companies in the group strategic areas as security, cloud, digital platform, data science, digital workspace that represents some of the main digital trends of innovation technology. In VAD sector on May 2023, following the antitrust authorization, we executed the acquisition of 55% stake of Altinia Distribuzione, reference player in managed printing solution, we done already equal to EUR 15 million. Altinia has been consolidated from May 2023, the starting date of the new fiscal year as of April 30, 2024. In SSI sector, we acquired some mid companies operating in vertical application, data science and digital security. Lastly, we closed the acquisition of Visualitics, consultancy company focused on data management analytics with 40 skilled human resources, annual revenues of EUR 4 million and EBITDA margin of about 20%. On June 2023, we acquired the majority stake of Informatica, company with EUR 6 million revenue, EBITDA over 10%, and 40 human resources, focused on SAP consultancy. In June 2023, we enlarged our skills in digital workspace with the 55% stake acquisition of Sangalli Tecnologie, company with 30 skilled human resources and revenues of about EUR 7 million with an EBITDA margin equal to 12%. Last week in the digital security, we acquired a majority stake of Wise Security, company leader on cyber security Spanish market with expected annual revenues over EUR 10 million and EBITDA margin equal to 20% and 120 human resources. The buildup on new business services sector focus on financial services industry was driven by some strategical moves that we integrated in progressive way. Last month we announced the acquisition of 130 Servicing reference player in Italy in the securitization services. They will remain in the team of about 120 human resources, annual revenues for about EUR 15 million and an EBITDA margin of 20%. We plan to execute an acquisition in September 2023, after the final authorization of Bank of Italy. Thanks to organic growth, no term agreement with some strategic partners and customers as [indiscernible] and the integration of last M&As, our business services sector targets in the fiscal year 2024 revenues for around EUR 120 million, 850 human resources, and above 12% EBITDA margin. In the new fiscal year, we will continue to attract on industrial basis, small/mid companies with skilled human resources under a sustainable 5x EBITDA multiple evaluation with earn-out mechanism and progressive receivable stakes acquisition to commit in the long term the key people of the target company. Thanks to [ M&As ] already closed since January 2023 in the pipeline of new targets, they tend to replicate the results of the last year with about 15 M&As in the combined perimeter of over EUR 105 million revenues and 500 new people. Considering not only planning on targets, but also some opportunities across Europe. Now I give the floor to Jacopo to provide an updated overview about our sustainability and some details on the next August Shareholders Meeting Agenda.

Thank you, Elisa. We closed fiscal year '23 with great improvement of our ESG performance, consolidating our strong commitment to value generation to stakeholders. The 12-month period confirmed the group ability to attract fields and human resources with 4,717 skilled human resources, up by 13% year-on-year. And our long-term growth and development trends driven by our intensive programs with 760 new hires in the fiscal year '23 and M&As in the pipeline. On June '23, we also launched a new welfare program to support the parenting, diversity, well-being and work-life balance and committing our program also in favor of diversity/inclusion and the announcement of the group's Sustainability Committee. As for the main environmental results of fiscal year '23, we reduced emissions per capita down 10% year-on-year from 1.4 CO2 tons fiscal year '22 to 1.2 CO2 tons in fiscal year '23. We increased the green energy produced by our photovoltaic systems, 1.3 million kilowatt hours, up by 25% year-on-year. We increased the share of green electricity to save from third parties over 93%, including self-produced green energy. We decreased also the consumption of water, natural gas as well as the weight per capita, 0.03x in fiscal year '23 compared to 0.04x in fiscal year '22. We will continue to work intensively to develop our ESG programs by focusing on energy and natural resources efficiency and energy production from renewable sources to fulfilling to our main sustainability ratings, the underlying achievements of gender equality certification, the expansion of ISO 14001 Environmental Certification to the major companies, the improvement of MSCI score to BBB level and the increase of CDP rating to B level. We also underline that our Board of Directors today has approved to the next shareholders meeting as of August 28, by first call, and as of August 29, by second call. Our dividend distribution equal to EUR 1 per share compared to EUR 1.90 per share of the previous year in the light of the strong set of fiscal year results to approve a new buyback plan for EUR 10 million and to approve the corporate statutes amendment providing the possibility of free share capital increase to serve stock grant plans reserved to Group Human Resources with strategic responsibilities. Now I give floor again to Alessandro for conclusions.

Thank you, Jacopo. So we close very positive fiscal year and a 4-year period with the record we moved from EUR 1.5 billion consolidated revenues in full year 2019, and we achieved EUR 2.9 billion full year '23. We moved from EUR 74 million consolidated EBITDA in 2019, up to EUR 210 million in full year '23. We closed the full year '23 with 22% growth in revenues and 25% increase in profitability with positive trend, very positive trend confirmed also in the fourth quarter of the year. We prove our main industry KPIs as customer set, revenues and resources of market share, consolidating our competitive advantages and market position as referenced European system integration for the business segment. We did a great job evolving our organization by integrating the last bolt-on M&A and developing new strategic business clients from cybersecurity to digital green, data science and digital platform, while we continue to evaluate wide pipeline of new potential targets with a creative EBITDA margin and perimeter of operations both in Italy and across Europe to expand also our international presence. Corporates and enterprises demand on digitalization is confirmed solid with steady investments in digital transformation and low rates [ coming to the period ] higher than the pre-COVID one, driven by market segments as cloud enterprise software security. Considering our strong full year results, the contribution of static from the pipeline of M&As as well as the demand of digitalization, today we confirm our positive outlook for the full year as of April 30, '24 with a target of revenues and EBITDA increase in line with our long-term track record that will grow between 10% to 15% at revenues level, and between 15% and 20% at EBITDA level. As in the past, we will continue to invest in the long-term development of digital skills, employees and business applications. We tend to reinforce our role of reference player in the digital industry and continuing to generate sustainable value for our stakeholders. Thank you for your attention. Now we turn the call for the Q&A session.

[Operator Instructions] The first question is from Andrea Randone of Intermonte.

Congratulation for the results. I had 3 questions. The first one is about the guidance, you confirmed the guidance to releasing the positive results. And so I wonder if you can provide us with a comment about your perception on the market. Again you confirmed the guidance, but from macro uncertainties in Italy, so if you can detail some comments on the sectors you are operating, and also the current trading in the beginning of the year. Second question is about the labor market. Again, if we can comment on what is the perception of the SeSa brand, so what gives working for SeSa for young people if you're finding more difficulties or procedure for you to hire talented people. And the last question is more curiosity, because everybody's speaking about the artificial intelligence. So if you can comment, what you are doing with your customers in this field?