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 full year 2025 Consolidated 9-Months Results Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Jacopo Laschetti, Stakeholder and Corporate Sustainability Manager of SeSa. Please go ahead, sir.

Good afternoon, and thanks for joining the SeSa Group presentation. On behalf of SeSa, are participating Alessandro Fabbroni, CEO; Caterina Gori, IR and Corporate Finance, M&A Manager; and myself as Stakeholder Relation and Corporate Sustainability Officer. Today, our Board of Directors has approved the consolidated results as of January 31, 2025. Additionally, our 9-months corporate presentation was made available on the SeSa website this morning and will serve as a reference during this conference call. Alessandro will open the presentation with an overview of our main strategic achievements.

Good afternoon, and thanks to all of you for joining our call. Today, we disclosed our 9-months results as of January 25 with a 5% growth in consolidated revenues, driven by 12% increase in Q3 only and back to growth of EBITDA increases 2.6% quarterly with a significant reversal from the first half and a positive trend that now we target to extend in Q4. We underline that Q3 consolidated figures are reported without any pro-forma adjustment as Greensun financials has been included in the consolidation scope starting from the Q3, the 9-months '25 results include the pro-forma figures of all Greensun, just for the first half '25. Consolidated revenues in the 9-months period were equal to EUR 2.5 billion, up 5% year-on-year and consolidated EBITDA to EUR 177 million, down 2% year-on-year. In the same period, we confirm our ability to attract and retain skills with higher than 6,000 people as of January 25, up 14% year-on-year. In terms of group sectors of trend of revenues, we underline the business services sector that increased by 32%, driven by the development of applications and digital platforms dedicated to the financial services industry with a great 45% growth in Q3 only and 50% contribution from external leverage. Digital Green grew by 28% year-on-year, including the acquisition of Greensun, while on a like-for-like basis revenues declined by about 30%, with a stabilization in Q3 compared to -- down by higher than 40% in the first half. In Q3 '25 only the old perimeter of Digital Green reported revenues growth by 60% with a trend that now we target to confirm in the Q4 with the back to an organic growth, that means revenues increase like-for-like. System integration and software revenues were up by 6.1% with a standard average contribution of around 50% to the 9-months growth. VAS declined by 1.7% in the 9 months period with a solid back to revenue growth in Q3 only, up 8% year-on-year and the progressive recovery expected also in Q4 and an organic growth trend. 9 months '25 consolidated EBITDA amounts to EUR 177 million, decreasing by 2% year-on-year, mainly driven by the adverse market conditions in Digital Green and VAS sector in particular in the first half and driven also by some margin erosion in system integration due to the ongoing industrial process re-engineering. However, Q3 '25 shows a very positive swift with EBITDA increasing by 2.6% year-on-year, driven by the strong performances of Business Services up 100% in Q3 only and the recovery of Digital Green sector up 25% in the Q3 only. In the 9 months '25 Group EAT Adjusted declined by 10% compared to the 9 months '24, improving from the down of 16% report in the first half compared to the previous year. Notably, in Q3 '25, the decline was significantly mitigated, and Group EAT Adjusted down only 2.7% year-on-year. This positive trend reflects the stabilization of financial charges, which amount to EUR 10.4 million in Q3 '25 compared to EUR 10 million in Q3 '24, and with a 10% improvement compared to higher than EUR 11 million of Q2 '25. Finally, as of January 25, net financial position reported, that includes around EUR 200 million of IFRS that recorded a net debt of EUR 92.2 million compared to EUR 62 million as of January 24, this represents a substantial recovery from the EUR 65 million as per quarter between October '25 and October '24. As of January '25, the Group achieved an notable improvement despite the impact of EUR 26 million of Buy Back and dividend distribution, last 12 months, along with approximately EUR 130 million in M&A in CapEx over the last 12 months to sustain our future long-term growth. So now I give the floor to Caterina, who will provide us an overview of our M&A programs and pipeline.

Thank you, Alessandro. Over the past 18 months, our M&A strategy has been focused on high margin and growth sectors as Business Services and Software and System Integration. In FY '24 only, we completed 13 M&As, adding more than EUR 110 million revenue, a progressively growing EBITDA and brought in more than 460 skilled headcounts. In FY '25, we realized 10 M&As generating roughly EUR 160 million annual revenues and onboarding more than 490 experienced professionals. We will now provide an overview of the latest M&A transaction by sector. In the Business Services sector, we announced two strategic deals, which contribute to enhance the exponential growth of the sector and build a unique software solution portfolio. More in detail, in May '24, we acquired the majority stake of ATS, a leading Italian company in the digital platform for capital market with annual revenue of EUR 14 million. In September 2024, we announced the acquisition of Metoda Finance, a leading company specialized in offering software solution for the supervision of financial intermediaries with more than 200 clients, including some of the main Italian banking groups, generating approximately EUR 8.5 million at the acquisition date. In terms of Digital Green, following the authorization of the Italian Antitrust Authority received last November and according with the binding agreement already disclosed last October, in December 2024, we announced the acquisition of the 66% of Greensun, a key player in the renewable and energy savings sector, which offers technology and specialized consultancy services. From Q3 2025, Greensun figures has been consolidated in the perimeter. Please note that Q3 2025 Digital Green sector achieved EBITDA margin of 7.2%, representing an improvement of 0.7% points compared to the Q1 and Q2 2025. This positive trend is expected to be further consolidated with the merger of Greensun into PM service scheduled for early 2026. In the SSI sector, following several small, medium-sized acquisitions, including two international M&As, SMART engineering in Germany and Boot systems, LBS in Spain, we have further to enhance expertise in Consulting, Digital Service and Business Application. Additionally, we acquired Metisoft, a leading Italian company specializing in consultancy and digital solution for SAP platform with 160 highly skilled headcounts, annual revenue of EUR 15 million and EBITDA margin of 8%. Further expanding our presence in this sector, we recently realized the following acquisitions. On February 2025, we acquired 52% of IT PAS, company with EUR 3 million revenues, EBITDA of approximately 15% and 25 skill headcounts, specializing in ServiceNow platform consulting. IT PAS utilizes artificial intelligence-based solution to automate and enhance efficiency of enterprise and organization processes across various industries. On March 2025, we acquired the 60% of InnoFour, a Netherland-based company, specializing in Electronic Design Automation and simulation software solution, with EUR 6 million revenue, EBITDA margin of approximately 10% and 15 headcounts. In terms of M&A process, we have recently intensified our activity towards high-margin and growth sectors to support the group's ongoing transformation. Considering that in FY '25, we are going to realize approximately 20 internal mergers in the SSI sector only, of which 16 in the 9 months. Our deals are typically structured, has oriented towards a long-term commitment of key people of the target company with an entry valuation of 5x EBITDA and the gradual integration within the group strategic business unit, typically ending with -- in full merger. I also underline that during the Q3, SeSa completed the EUR 10 million buyback annual program. As of today, the treasury shares consisting approximately 1% of the share capital at the end of the Q3 2025. In addition, our parent company, ITH improved our stake from 53% to 53.5% as a result of the purchases carried out in the month of December '24 and January '25. Now I'll leave the floor to Jacopo to provide an updated overview of our HR and sustainability path.

Thank you, Caterina. After a great improvement in our ESG performance in the fiscal year 2024 in the 9-months period, SeSa group strengthened ESG programs and continued to increase the activities aim at reducing it's environmental impact and consumption of other resources. In terms of people management, in the 9 months period as of January 2025, we continue our long-term development of our workforce, achieving 6,367 headcounts, up by 15% compared to the 9-month period of 2024, with a growing focus on key growth areas as Technology, Consulting and Business Applications and for an improvement on loyalty rate. We continue to reinforce our education, hiring and, in particular, welfare programs with wider and specific measures to support parenting, diversity, well-being and work-life balancing. Thanks to dedicated programs in favor of diversity and inclusion. In terms of capability to create value for our stakeholders, our last fiscal year results was characterized by a significant improvement in ESG performance and achievement of some relevant sustainable development goal set. We reinforced our group purpose that confirm our corporate values and goals of long-term sustainable value creation for the benefit of all stakeholders. Digital innovation value creation, in the long-term sustainability and digitalization continues to be core pillars of our group strategy. I also remember the award achieved at the end of 2024 with the inclusion of SeSa among the top Italian companies in the most climate conscious companies ranking. The ranking identifies the 175 Italian companies that have achieved a significant reduction in the intensity of emissions over the period 2021 and 2023. The company's rent were selected for a sample of more than 600 Italian companies. Once again, this award highlights the long-standing commitment that our group has always placed on the issues of sustainable growth and value generation. Finally, we underline the confirmation of our ESG ratings in the high level of the range as EcoVadis Gold Medal, Morgan Stanley's BBB and Carbon Disclosure Project with a B score. Now, I give the floor again to Alessandro for the final conclusions.

Thank you, Jacopo. So the results of January '25 achieved in a challenging scenario have confirmed our resilient path and capability to extend our industrial development, gaining again market share, consolidating years of consecutive double digits growth in revenues and profitability, driven by all growth sectors. The Q3 '25 shows a very positive shift with a 12% growth to revenues and 2.6% increase in EBITDA, and now we target to grow double-digit both revenues and profitability during the Q4. In the light of the positive trend of Q3 today we confirm the outlook for the full year ending April 30, 2025 with a mid-single-digit growth in revenues and EBITDA, thanks to the expected growth in Q4 and the positive trend ongoing in the Business Services sector as well as the Digital Green. We underline that for the FY '26, we are working on our group's new industrial plan, targeting results in line with the market consensus with a nice single-digit growth of revenues and profitability, targeting higher than EUR 3.6 billion revenues and EUR 270 million EBITDA. We will continue to move forward in our Group's industrial transformation path, increasingly oriented to Consultancy, Digital Platform and Technology Innovation across the main drivers of evolution as Digitalization, AI, Cyber Security and Digital Platforms pursuing sustainable long-term value generation for our stakeholders, taking also the opportunity of an IT market that now is recovering [indiscernible] after the deceleration of the year 2024. So thank you for your attention. Now we stay available as usual for the Q&A final session.

This is the Chorus Call conference operator. [Operator Instructions]. First question is from Andrea Randone, Intermonte.

The first one is on the Business Services segment. You performed very, very well. I wonder if you can give us more color about the achievements -- business achievement in this segment and also on a longer-term perspective as what is your ambition? The second question is about Software and System Integration segment. You mentioned a number of internal mergers in order to streamline the organization. I wonder if you can comment on the benefits that you are expecting in the midterm, also in terms of marginality from these kind of actions?

Good Afternoon, Andrea and thank you for your questions. So yes, the Business Services is improving very well with growth in the 9 months by 32% in revenues and in the quarter only by 45%, an improvement in EBITDA by 60% in the 9 months, over 100% in the Q3 only and an increasing in Group EAT Adjusted of around 60%. So we managed to enlarge our perimeter of operations to improve our portfolio of main customers in any of our significant offerings from Security to, in particular, Vertical Software Applications and around 50% of this growth derived from the last two acquisitions, approximately 50% is organic. So we plan to continue to grow with the same base more or less in the Q4. We achieved around EUR 150 million revenues. And I have then EUR 25 million EBITDA in this full year. So in FY '25 and to achieve like-for-like EUR 200 million revenues in FY '26, thanks to the great development, we are performing in all business units. So we may achieve a leadership role in the market scenario that is very fragmented, thanks to our proprietary software and vertical platforms. So the plan is to achieve the line of EUR 300 million that will put us in -- sorry, the first three players in Italy with possibility to enlarge our operation also abroad. So the System Integration and Software trend in Q3 continued to be our expectation so the EBITDA margin showed a slight increase because it was 11.3% compared to an average of 11.1% in the full period of 9 months. We continue to grow year-on-year so at January, we grew by around 6%. We improved our re-engineering process. We closed around 20 M&As integration. So that means higher than 20 mergers intercompany, inside this perimeter. So we really believe to achieve a first recovery of marginality in the Q4. We target an 11.5% of sustainable EBITDA marginality and in any case, we continue to take the pace of high single-digit growth year-on-year. And remember that this sector developed around EUR 300 million revenues in FY '19 and delivered 20% average growth year-on-year to the FY '24. So we believe that is, in any case, a great and crucial driver to grow organically also in coming years so that means also in FY '26.

Next question is from Marco Sormani, Varenne Capital Partners.

I have a question still on the Software and System Integration numbers versus corporate. There is any change in perimeter also that is impacting negatively the Software System Integration numbers. So some turnover we move from Services Integration to corporate. If I remember well, there was a company called [indiscernible] -- okay, can you elaborate a little bit more on that with effect or not in that account?

After Marco, we move perimeter of around EUR 50 million revenues and EUR 1 million of [ EBITDA ] from Software and System Integration to corporate. And so we saw in the first 9 months a growth in the corporate sector up around EUR 700,000, and that is the effect of the [indiscernible]. So that means there's also a negative effect on the Software and System Integration that we should normalize. If we consider this effect for the trends in revenues, it is more or less single digits, so 7% to 8%. It's true that in any case, our digital experience consulting practice, we as -- we have inside the System Integration and Software is improving its operations. So that means we make a reorganization that as of today is positive for the group.

Okay, very impressive. So second question, more on the interest expenses. So when do you think the decrease in interest rate, that is going on every month, will have a positive impact, so some less interest expenses for you, so a better financial results. When do you think it will materialize?

We already materialized this in the last month of the quarter, so in January. And so starting from February, we will have a positive effect. Consider that in Q3 '25, more or less, we had financial charges -- net financial charges equal to the Q3 with a down of 10%, so with an improvement compared to Q2. Now we expect in Q4 a significant saving as -- to be considered that for a significant share of Group’'s financing interest rates are accounted for in advance on a quarterly basis. So the Q4 '25 and also Q1 '26 will benefit of the down of interest rates from around 3.5% in mid '24 to below 3% to 2.5% in February '25. So we will see positive effect in Q4.

Okay. Yes. And also, I remember you were doing some cash management measures in order to improve the position, that is factoring overall cash management of a company -- of a different, but also subsidiaries, maybe an update on the work you are doing on that -- yes, I think it probably contributes positive in the improvement.

For example, Software and System Integration. We centralized the funding in some holding for group that paid around EUR 4 million interest rates of which EUR 2.5 million are internal because we have reached on the cash pooling procedures for around 90% of the perimeter. So we increased a lot of these practices in order to rationalize our funding operations.

Okay. Yes, maybe last one for me, more on the international development. Any update on your operational outside Italy?

We have just closed an operation in Benelux and Scandinavia that completed the coverage we have in the Digital Industries segment. We're already operating in Germany and France, also in Italy. So that means a perimeter of more than EUR 60 million revenues with a strong partnership with Siemens industry software and more than 3,000 customers across Europe. So that is one update. Another one is that we are developing the country coverage inside Software System Integration, among them, in particular, Spain and Germany. So we continue to work also in these directions, in a progressive way. We are obviously spending this cost of development, but we are doing really well, and we will benefit from this.

[Operator Instructions]. Next question is from Aleksandra Arsova with Equita.

One on my end on M&A strategy. So I was wondering, are you still willing to pursue your bolt-on M&A strategy at the same pace as over the past years? Or maybe you're willing now to focus more on organic growth and recovery of operating margins. So just some color and details on this.

Thank you, Aleksandra. Oh yes, we are more selective than the past. We are closing the FY'25 with around 10 M&As as compared to more than 15 one year ago. We are oriented to consider more international M&As than the past. And in any case, we consider an high upsize than the past. Any M&A in comparison to the past is integrated in our Business Unit with a plan of making within a period of time. And in the process of integrations, that is defined before the acquisition, so we'll be more and more focused on this job. That is, in particular, considerable in Software and System Integrations. So, as I said before, in Q3, Software and System Integration sector performed with an EBITDA margin of 11.3% compared to 10.3% of Q2, that was down. And so that is a first sign of our different way to integrate the M&As and to work in order to generate synergies and efficiencies.

[Operator Instructions]. Next question is from Andrea Randone, Intermonte.

Just a quick follow-up on the cash flow generation I mean, the lower net debt at the end of January was one of the most important positive surprise in the quarter to me. And I wonder if you can comment on what our expectations for the full year? And, in general, what do you expect in terms of free cash flow generation going forward? Also connected to the expectation of a lower financial charges you were talking before?

So we closed the 9-month period with EUR 108 million cash and EUR 92 million reported net debt, so net of around EUR 200 million IFRS Liabilities. We improved by around EUR 30 million, our reported financial position compared to October '24. That is driven mainly by the down on networking capital that we reduced from EUR 100 million to EUR 79 million from October to January. That is very positive considering the growth we have in the Q3 only because we grew revenues by around 12% and so we managed to increase a lot of our efficiency. Now we target to improve again in a considerable way for the closing fiscal year. So as of April 30, we will plan to have a net financial position reported more or less as last year. So this effect will be obviously positive also on our financial charges. Now we plan to generate saving of around 20% to 25% in Q4 financial charges compared to the Q4 '24. And we are working in order to secure these objectives that are crucial for our future development. Obviously, in FY '26, we will benefit in an additional way of our job, of our way to work in M&As that means to be able to work in a more selective way and also to improve in a sustainable way, our cash flow generation and in addition to that, the working capital efficiency as we lean as of January.

[Operator Instructions]. Mr. Laschetti, there are no more questions registered at this time -- sorry, there is a follow-up from Marco Sormani, Varenne Capital Partners.

Yes, maybe one last question from my side. So given the extremely good results or business services, could you please provide us with some more color on the driver of that, how you can be so successful in that segment, is the externalization from banks or from financial business? Can you explain us a little bit more how you are developing so well in this segment and what are the main drivers. And how are you sustaining or big driver also for the future?

Thank you for the question. Our business is 100% recurring and based on Proprietary platform, so not driven by externalization. So we work by a long-term agreement to provide Consulting and Platform for operation of some Banking or Financial Services Departments. We work a lot in terms of portfolio of customers, so we won several [indiscernible] for some of the major Italian banks. So we are confident to be able to move forward with this space. And in the last 2 years period, we increased a lot of our portfolio of Proprietary platforms. And we are making also a great job cross-selling between our customers and our platforms. So that is the reason we increased our EBITDA margin and net profit after tax is marginal sales in a considerable way over the last two financial year. So we are -- we believe -- we do believe we are really in the right pace to continue to work and delivering results.

Next question is from [indiscernible], Private Investor.

Alessandro, can you hear me?

Yes. Yes. Very well.

Very good to speak to you again. So I have a question around the guidance. So for the first 9 months in fiscal year '25, you are minus 2% for EBITDA. But when I looked at the full year guidance, it seems like you're expecting still a single-digit growth of EBITDA. I mean, to me, it looks like the last quarter of '25 is going to be very, very strong. Is that correct interpretation?

Yes. In the Q4, we will benefit from two main drivers in our new. First of all, the growing trend of business services that will continue. In the Q4, we will come back to grow also like-for-like in terms of revenues and EBITDA of Digital Green. So we will perform really well because to an organic growth, we will add the contribution of Greensun. So we may perform higher than within the Q3. And obviously, we expect a recovery also from our core sectors of Software and System integration and AI, so it is the way we continue to consider achievable grow of single digit in EBITDA, yes for the full year growth.

Okay. So, I mean, headcount is growing quite rapidly. I mean, it's up 14% year-on-year and sales is lagging a little bit. When you see a market recovery now, can we start to see the good margin progression that we saw before like in the previous years -- I mean we typically increased share point to 20 basis points, 30 basis points a year or sometimes even more? Can we continue coming back to the positive margin trajectory going forward, like for next year or the year after?

Consider that we are in the middle of Gray group transformation, so we are growing in areas like Business Services, System Integration that are typically areas of Consulting, Software and IT services while we are flattish in the reselling activity. So if you consider the number of employees of our distribution activity, they are absolutely flat year-on-year. So the growth had -- is, in particular, in the Business Services and in Software and System Integration. And also, if you compare the 9 months employees that are 6,370 compared to the first half employees that was more or less 6,200 employees. So the only change derived from the two acquisitions, in particular the acquisition of Metisoft, that is a consulting company in SAP, one of the largest in Italy with 200 people that we consolidated just for 1 month and that will contribute for EUR 15 million revenue. So the headcount is not comparable to revenues because we consolidate just for 1 month revenues and for 12 months so year-end, so period-end the number of employees. So these are the drivers that are moving our employees, our count. We are looking well in our HR management, the churn rate is below 7%. We work a lot in terms of employment. We increased our under-30 employment to 25% over the last 3-year period. That is very positive obviously in order to increase the quality of our new resources and our skills and take under control, obviously, also the cost of our average employee. So that is really relevant driver for us to perform well in future and we believe we are working well with a good balance to perform our group transformation, that is moving forward towards sector with double-digit EBITDA margin towards practices as consultancy or software or platforms instead of a pure reselling activities.

Okay. I just have one final question on stock repurchases. So you have you've done a little bit, I think, hold 1% in treasury shares. But when I look at sales today -- I mean, the company is basically trading on the same multiples that you acquire new companies too. Would it be sensible to do more restock repurchases? Because if you pay the same multiples for the existing businesses that you already own rather than taking an increased risk by acquiring new companies. I mean, I understand there can be strategic reasons for acquiring various new businesses, but in the end of the day, like your company is basically trading under same multiples that you can do acquisitions for. So it looks to me like it would be quite sensible to take some of the cash that you generate and buy back more shares.

Yes. I read on your considerations. Consider that we completed the buyback plan we deliberated last September '24. So now, we will have a new appointment next August and we have to increase the plan on buyback obviously because at this particular level, it is particularly convenient for us. As for the M&As price, consider that our industrial value is not 5x the EBITDA, that the industrial value of our industries are 10x, that is the value that currently are applicable in our industries, for example, by private equity or industrial transaction. So we consider to work with 5x the EBITDA very well. Obviously, we should be more selective. And in any case, we have to select only companies that we may integrate generating synergies and additional value in order to reduce so maybe we pay 5x the EBITDA, but we work with an implied multiple of 3.5 if we are successful in the integration. So on one side, we would like to evaluate also to increase and evaluate plan and on the other side to continue the M&A in a more selective way and in any case, to be able to generate value and so to reduce the implying multiple below 5x.

Mr. Laschetti and ladies and gentleman, there are no more questions registered at this time.

So thanks, everybody, for your participation. And as usual, we stay available for any additional information by May. Thank you very much.