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 Full Year 2027 Consolidated 3 Months Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Jacopo Laschetti, Head of Stakeholders Relations and Sustainability of SeSa. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining SeSa Group's First Quarter Results Conference Call. On today's call, SeSa Group is represented by Alessandro Fabbroni, Group CEO; and myself, Head of Stakeholder Relations and Sustainability. This afternoon, the Board of Directors approved the consolidated financial results for the first quarter of FY '27, ending 31st of July '26. The related corporate presentation is available on SeSa Group's website and will be used as a reference during today's call. Alessandro will begin with an overview of the group's financial performance and key business highlights. I will then provide an update on sustainability, people and stakeholder value creation before Alessandro concludes with its FY '27 outlook and some remarks of our industrial plan. I will now give the floor to Alessandro.

Thank you, Jacopo. Good afternoon, everyone, and thank you for joining us today. In a digital market sustained by strong demand for data management and data protection and increasingly driven by AI and automation, we started the full year 2027 with a solid set of industrial and financial results, delivering high single-digit organic growth in both revenues and profitability at twice the market growth rate. More specifically, the first quarter confirms the effective execution of the new industrial plan 2027-2028, presented last July as we continue to strengthen our market share and to consolidate our role of digital integrator, combining technology, digital platforms and vertical applications with a progressive adoption of AI. For the first quarter ended July 2026, SeSa reported consolidated revenue and other income for EUR 900 million, up 6.5% year-on-year and fully organic. Consolidated EBITDA amounted to EUR 65 million, up 7.6% year-on-year with an EBITDA margin achieving 7.23% slightly improving compared with the same period last year. The group ended the quarter with 6,700 people, up 2.5% year-on-year and flat compared with April 30, '26, reflecting our continued focus on skill development, AI adoption and operating efficiency to sustain scalable organic growth. Looking at revenues by business sector, performance was driven by positive contribution for our main growth area. ICT VAS sector reached EUR 540 million, up 8.1% year-on-year, fully organic and in line with the trend already achieved in FY '26, driven by increasing demand for solution dedicated to data management, data sovereignty and cybersecurity, enabling the adoption of private AI and automation. Green VAS sector achieved EUR 127 million, up 14.4% year-on-year in line with a great double-digit organic growth trend reported in FY '26, driven by increasing energy demand linked to digitalization and in particular, by the development of the data center market. Software and System Integration sector reported revenues for about EUR 230 million, down 3% year-on-year reflecting the disposal of selected nonstrategic assets completed during FY '26 and the ongoing organizational reengineering process. Based on the current trend, we expect Software and System Integration to return to growth starting from Q2 2027 in line with our industrial plan. And finally, Business Services sector reached EUR 41 million up 11% year-on-year, confirming the expected return to double-digit organic growth in FY '27, driven by the contribution of multiyear contracts acquired during FY '26 and by the increasing focus on digital platforms and vertical application. Consolidated EBITDA increased by 7.6% year-on-year to EUR 65 million, with EBITDA margin at 7.23%, slightly improving compared with the prior year period. This performance was driven by double-digit profitability growth in ICT VAS sector, Green VAS sector and Business Services together with a progressive improvement in Software and System Integration operating efficiency. In particular, ICT VAS sector reported EBITDA for EUR 25 million, up 11% year-on-year with an EBITDA margin increasing to 4.6% compared to 4.5% in first quarter 2026. Green VAS sector achieved EBITDA for EUR 7.7 million, up 23% year-on-year with EBITDA margin improving to 6.0% from 5.6% in the prior year period. Software and System Integration sector recorded EBITDA for EUR 23 million, down 2.5% year-on-year, while flat year-on-year, excluding the impact of FY '26 disposal of nonstrategic assets, and improving in terms of EBITDA margin, which grew to 10.8% from 10.7% year-on-year, thanks to higher operating efficiency. Business Services sector reported EBITDA for EUR 8.6 million, up 18% year-on-year with EBITDA margin reaching 21% compared with 19.9% in first quarter '26 and 19% as of April 30, '26, confirming the increasing contribution of higher value-added digital platforms and vertical applications. Group adjusted consolidated EBIT reached EUR 50.2 million, up 6.2% year-on-year after depreciation and amortization for EUR 14 million and provision of around EUR 1 million. Reported EBIT amounted to EUR 41.4 million, up 7.5% year-on-year after PPA amortization for EUR 8.7 million. Group adjusted EAT achieved EUR 30.1 million, up 7.1% year-on-year, supported by profitability growth in ICT VAS, up 12.6%, Green VAS, up 20% and Business Services up 11.4%, while Software and System Integration remained substantially stable down 1% year-on-year on a reported basis, but up 1%, excluding the impact of FY '26 disposal of nonstrategic assets. During the quarter, net financial expenses amounted to around EUR 7.5 million, improving by 11% compared with fourth quarter '26 and in line with assumptions of our industrial plan supporting the quarterly trend in group net profitability. In the first quarter, we also achieved a solid financial position and strong cash generation. Reported net financial position as of July '26, was equal to EUR 23.4 million of net debt, improving by around EUR 40 million compared with July '25 after EUR 120 million of investment over the last 12 months, including EUR 20 million in first quarter '27 and after EUR 40 million of dividends and share buybacks over the same period. Excluding IFRS liabilities, group net financial position was equal to EUR 150 million of net cash with a slight improvement year-on-year. Overall, the first quarter 2027 confirms our ability to combine organic growth, increase of operating efficiency, industrial transformation and strong cash flow generation. With this positive first quarter performance, I will now hand over to Jacopo for an overview of our sustainability and stakeholder value creation priority.

Thank you, Alessandro. In line with our purpose of creating long-term sustainable value for our stakeholders by promoting innovation, including digital innovation across businesses and organization as well as people well-being, sustainability remains fully embedded in the execution of our business strategy in the new industrial plan '27-'28. The first quarter confirms the close link between digital transformation, sustainability and business growth. Our Green VAS sector continued to deliver double-digit growth driven by increasing energy demand connected with digitalization and in particular, by the development of the data center market. At the same time, our activities in data governance, cybersecurity, digital platforms and AI continue to support customers in improving efficiency, resilience and control over their digital processes. On the environmental and governance side, we continue to develop our sustainability programs and strengthen transparency towards investors and all stakeholders. We confirm our main ESG ratings including EcoVadis Platinum, MSCI BBB and CDP Level B. In FY '26, we completed the ISO 27001 certification process across all main group companies, further strengthening our information security and governance framework. At the same time, we continue to extend group certifications and progressively increase the adoption of renewable energy. People remain a key enabler of our transformation and the execution of the industrial plan. As of 31st of July '26, the group counted 6,770 people, up 2.7% year-on-year and stable compared with April '26. This stability reflects the first tangible benefits of the initiatives launched to develop skills, accelerate normal sharing, progressively adopt AI and automation across the organization and increased operating efficiency. We continue to invest in education, welfare, inclusion and work-life balance, with a growing focus on the skills required in the areas of highest market demand, including AI, data management, cybersecurity, digital platforms and vertical applications. These investments support scalable organic growth, improved productivity and ensure that our people remain central to the group's long-term value creation model. Finally, our value creation model continues to combine sustainable growth with shareholder remuneration. The new industrial plan confirms a payout ratio of approximately 40%. In line with this policy, the dividend to be distributed on 23 September will increase from EUR 1 to EUR 1.33 per share with the perspective of reaching up to EUR 2 per share over the next 2 years, subject to the achievement of the industrial plan targets. Consistent with our shareholder value creation policy, we have already launched our EUR 5 million buyback program. And today, the Board approved a further program of the same amount. Additional purchases will be evaluated within the overall authorization of up to EUR 20 million. In this scenario, we will continue to focus on sustainable value creation for our stakeholders combining innovation, financial discipline, people development, a responsible group. I will now hand the floor back to Alessandro for the final remarks.

Thank you, Jacopo. Two months after presenting our new industrial plan, '27-'28, we are pleased to report to our stakeholders a solid start of FY '27, consistent with our strategic priorities: organic growth, operating efficiency, market penetration and the progressive adoption of AI and automation. The market environment remains supportive. The Italian digital market is expected to grow by around 3.5% per year through 2029, driven by AI, cloud, cybersecurity and data management. In that scenario, SeSa continues to grow at around twice the expected market rate. In the first quarter 2027, we delivered a solid single-digit organic growth. We improved our profitability and cash flow generation, and we continue to invest in our industrial transformation. The first quarter confirms 5 key messages for our stakeholders: First of all, revenues increased by 6.5% and EBITDA by 7.6% fully organically. ICT VAS sector confirmed strong momentum supported by data management, cybersecurity and data protection demand and driven by private AI and automation. Green VAS and Business Services sectors continue to deliver a strong double-digit revenue and EBITDA growth. Software and System Integration show improving operating efficiency with EBITDA margin increasing to 10.8% of revenues and a return to revenue growth expected from the second quarter of 2027. Group cash flow generation remains solid with reported net financial position that improved by around EUR 41 million year-on-year after EUR 40 million of distribution and share buyback last 12 months. We are also progressing towards model increasingly focused on organic development, integration and group transformation with continued investment in higher value-added capabilities and digital platform. Based on this positive start and the current order trend, we confirm the full year 2027 guidance of our industrial plan, revenue growth in the range of 5% to 7.5%, targeting EUR 3.8 billion to EUR 3.9 billion, EBITDA growth in the range between 5% to 10%, targeting EUR 274 million to EUR 287 million and adjusted group EAT growth in the range of 7.5% to 12.5% targeting EUR 115 million to EUR 119 million. Looking ahead, we will continue to execute the plan with strong commitment focusing on organic growth, operating efficiency, cash flow generation and the capability to promote innovation across business and organization. Our strategic priorities remain clear: to grow at around twice the market rate, to improve our skills and capabilities and continue to extend our track record of consistent revenue and profitability growth while creating sustainable long-term value for all our stakeholders. Thank you for your attention and for your continued interest in SeSa Group. We're now pleased to open the Q&A session.

[Operator Instructions] The first question comes from Aleksandra Arsova with Equita.

So a couple of questions from my end. The first one is maybe some clarifications on the Software and System Integration business. If I'm correct, you mentioned that you saw an organic net of disposals growth -- basically flat growth over the first quarter? And do you expect to return to growth already as soon as in the second quarter of the fiscal year '27? So my question is what has changed between the first and the second quarter that makes you believe there will be a significant or, let's say, material improvement already in the second quarter? And the second one, if maybe, again, a little bit of color on trading update and visibility on the full year guidance. So if I remember correctly, during the July call with the fiscal year '26 results, you mentioned that, as usual, you are a little bit maybe conservative with the guidance and that there could be some room for ending up in the upper end of the guidance. So do you still see room for ending up in the upper end and then which are the main moving parts you see in the coming quarters?

Thank you for the call, Aleksandra. So first of all, our view of Software and System Integration is a very positive view due to the backlog order and strong job we did in the first quarter. So first of all, we highlight that the first quarter results are fully in line with our industrial plan that provide an estimate of low single-digit growth, both in revenues and profitability. It's true that in comparison with the last quarter, Q1 '26, we reported a negative trend. So revenue declining 3%, EBITDA 2%, but net profit just 1%. And I remember that in Q1 '26, we started with a down in net profitability of 26%. So that means we improve in a strong way, the skills, the competencies and also bottom line, we are working with the perspective to grow year-on-year. So in the second quarter, we expect to recover, in particular, in areas like technology and integration services -- and so that represents an opportunity to recover overall grow low single digit quarter-by-quarter and year-on-year, starting from the Q2. We started the first quarter overall with the path that is in the mid of our guidance. So the trend, the strong momentum we continue to have in ICT VAS and the positive performance of Business Services, the expectation of recovery in Software and System Integration are positive sign for the future potential upgrade of our guidance that, in any case, is confirmed today.

The next question comes from Tommaso Nieddu with Kepler Cheuvreux.

Both my questions are on margin. I think they are the main highlights of these results. The first one is on Business Services. I mean we are seeing continuous margin gains in that segment. So at what point do you think the segment's margin should normalize versus continuing to expand structurally? That is the first one. And the second one is on digital Green VAS. As we expect continuous margin expansion as well as you are integrating GreenSun and the comparison with last year is to an expansion of 40 basis points. This 40 basis point run rate we should expect throughout the year, so 2027 versus 2026.