TXT e-solutions S.p.A. (TXT) Earnings Call Transcript & Summary

Good morning, everybody. Thank you to attend this meeting with the results of the first half of the year of 2023. Unfortunately, there is no [ Bridgette ] in at this time, so we will do a quick overview of the results of the year together with Andrea Favini. The major KPI. So the first half of the year was very positive. We closed the -- 6 months with EUR 107 million, so more than EUR 100 million revenues with a strong growth, 71% more than the same period of the last year. The important to highlight that there is a strong organic growth, a solid organic growth with respect to the same period of the last year, plus 14%. This growth is driven mainly by the synergies of the companies belonging to the ecosystem. So the results of the new governance is bringing good results and overall growth of all the business lines. In terms of EBITDA margin, it's consolidated more or less EUR 14 million, that is [ 13% ] of the revenues. And at the end, the net profit consolidated by almost EUR 7 million. So 93% growth with the same period of the last year. We have a growth in all the segments of our offering. So the main business is the software engineering, so innovation of products of the customer by using the technologies. This business is overall 68% of the overall business of the company with a strong growth, 100%. So we double size in this area, mainly driven by the new acquisitions. So the new company that joined the group last year, but there is still a strong organic growth in this part. And in smart solutions to our proprietary solutions that accelerate the transformation of customers is 18% of the overall business and recorded a 12% of growth year-by-year and this growth is mainly organic. In terms of Digital Advisory, we have the stronger growth. So our presence in the market to innovate processes of the customers has been recognized with a strong 66% of growth that is mostly organic because we added the 2 companies at the end of the year, but the strong growth is coming from our, let's say, ramp-up of projects in the public sector for the Digital Advisory. Overall, it's 14% of the overall TXT business. Revenues recorded a plus 72% with respect to the last year. Last year, we closed at EUR 62 million, now more than EUR 100 million, so EUR 107 million. It's important to highlight that today EUR 100 million revenues was -- as consolidated the result was reached for the first time last year. So in the overall history of our company, now we are going more than EUR 100 million in just one semester, so in 6 months. And the growth is driven by all the segments as told before. So the overall business related to software engineering is more or less EUR 73 million. EUR 50 million more or less comes from the Digital Advisory business and EUR 20 million more or less comes from Software revenues. So licenses, subscriptions and advanced services we provide around our products. In terms of profitability, there is a strong growth of 52% more or less EUR 40 million of EBITDA. We have a slight decrease of the percentage of the margins, mainly due to the dilution of the business because we included a lot of software engineering business that has an overall 12% of margin and there are a big volume. So the contribution of EBITDA coming from Software Engineering services is at EUR 8.6 million. We have a 15 -- more or less 15% in profitability for the Digital Advisory division with a contribution of EUR 2.1 million and business coming from Smart Solutions is 16% in percentage margin and recorded EUR 3.2 million in growth of 22% with respect to the last year. So overall, a positive KPIs, and the contribution coming from the new perimeter of the new consolidated companies records EUR 36 million revenues in growth of 60% with respect to the last year. So all the segments are performing well, both in terms of growth and in terms of profitability. We continue to invest to improve our product lines. The investments in our, let's say, portfolio of Smart Solutions is EUR 4.5 million in growth, so increased the percentage of investment during the year by 14%. The revenues coming are more or less EUR 20 million related to our products in growth of 12% in the same period of the last year. We still have a strategic outlook for internationalization. We did it a little bit to the overall percentage because the new acquisition were mainly based in Italy, even if we are pushing in order to export our competence and our solution to the international market. So EUR 22 million is coming from international business. And in terms of net debt, so adjusted net financial position, we are still positive because we have EUR 24 million as net debt adjusted with the, let's say, excluding the participation -- financial participation in [indiscernible] that is worth more or less EUR 16.5 million. But we have a buyback plan that is continuing. At 30th June, we had -- considering the valuation of the stock price at 30 June, we have a -- as treasury share more or less EUR 27 million. This means that we have still the capability to invest to continue to grow because we plan to use our, let's say, treasury shares in order to continue our M&A plan. In terms of core markets, the distribution according to our strategy of diversification is similar to the distribution we had at the end of the last year. 24% in the core market of aerospace and defense with a recorded growth of 20% in this segment, mainly driven by the defense programs that are growing faster. There are good sicknesses also coming from the Civil Aviation Division even if the results will be consolidated more in the second half of the year. In Industrial and Automotive, there is stability with respect to volumes. We are facing also some, let's say, constraints given also by the funding coming from the innovation and digitalization of the industry that in Italy are a little bit slower with the PNRR that is not going so fast as expected for this segment. So we have stability, 10% of the overall business. 22% interest intake banking and financial domain with the growth recorded of 15%, so positive also the growth in this kind of segment. But the most, let's say, the champion of the growth is related to the public sector because we are ramping up with the project that we won last year, so big tenders related to innovation of public sector in general in Italy. This part is 13% of the overall business with a recorded growth of 54%. So very strong go-to-market in this area. The new market related to Telco, media that comes from another acquisition of the last year, today, is 32% of the overall business. According to the segmentation we provided last year, so we have changed this year by smart solutions by offering. Last year, we were present by market. According to the segmentation of the last year, there is this reflection of growth in all the industrial segments as discussed before. These are some highlights of what happened in the last 3 months. Let's first focus on the Smart Solutions business with an organic growth of more or less 9%. For this area, we have to highlight the fact that we are now -- now we are progressing strongly with our solution based on artificial intelligence that is the Faraday platform. The multiyear contract with 2 main large banks institution, started to go in profitability because we started to invoice our revenues coming from the subscription we provided to them. There is a ramp-up. And I want to highlight that the company that is providing this Smart Solution in the Q2 was at breakeven. So we know that we are still investing in our artificial intelligence platform, but the revenues coming from the market are starting to bring benefits and will bring also value during the rest of the year. We had a very good also upsell of license for the Digital Twin with our aircraft preliminary design platform that was selected by a large North American engine manufacturer, and we started to grow also in this segment. So North America is very strong for the growth, for the civil aviation, for all the product lines, but in particular, the aircraft preliminary design sign an important contracts during the Q2. Also, the platform related to extended reality, our WEAVR platform is starting to generate revenues and growing. And this platform is across industry solution that is starting to be appreciated by the market, and we signed in the second half of the -- second quarter of this year, a new contract with a big pharma company that will adopt our technology in order to train all the operators, they have overall the world in global sale landscape by using our XR technology. We have also a new innovative project that is related to a big worldwide leading IT blue chip. So we signed an agreement with Google in order to provide technology in innovation for aviation. So our product lines will be empowered by the artificial intelligence provided by Google and more information about this partner -- strategic partnership will bring value in the second half of the year and will be highlighted in the next quarters that we will have. Focusing -- to the another area, so not the offering in Digital Advisory. As told before, this part was the champion of growth for our, let's say, overall portfolio because we recorded a 35% of organic growth mainly driven by the growth in the public sector. So the big tenders that we won at the end of the last year now are operational projects. They are growing. We have started with several projects, the companies that are working on this area are growing also in terms of resources. So we find people, and we increased our team, and we are now delivering with a good pace what was expected to be delivered. Investment in the healthcare segment with the acquisition of PGMD last year, bring us also acquisition of new contracts, and the synergy is also among the companies. In this area we position ourselves as an emerging player also for the digitalization of healthcare, mainly in Italy. Also, the offering in cybersecurity brought by TLogos last year. In the space domain is also a strong opportunity of cross-selling and very high valuable multiyear contracts that bringing good margins. So that contributes in a good way for the margin of the Digital Advisory division. And we have new strategic opportunities because we are continuing to invest on the commercial side in order to win other tenders, and we are in a good position for close additional big contracts for the second part of the year with an outlook for the multiyear. So '24 and '25. Looking to the Software Engineering division that is the bigger one. We still had a double-digit organic growth, more or less 12%, driven by the new opportunities in the historical market and driven by the synergies among the company of the group. For the Embedded & Simulation, the area in which we are very, let's say, we have a strong value proposition also against the competition. It's a strategic market, and we are pushing in order to be more international. We recorded a growth of 30% in this area related to advanced services, mainly with -- in the German market for big defense giants operating in the area. And another important point I'll highlight is the signature of an important and strategic defense project that is leaded by Rheinmetall and big players like Airbus Defence and MBDA, Thales, Leonardo for a new, let's say, environment for training and decision-making. So we are part of this large consortium that is innovating also the training, the using the technology at the European level. So as a technology provider, we are working with these giants in order to bring innovation in the defense and in the military side also for Europe, for the NATO. The offering also that is a very high value in our portfolio is related to quality assurance -- for the software quality assurance, test automation, artificial intelligence applied for testing of complex systems for customers. Also, this area is the main driver of growth for the banking and finance domain for which we are present with the large institutions and we are continuing to grow and position ourselves as a strong player in the market because -- Today, we have a team of experts in this area that has more 300 resources, very specialized that are bringing value and bringing bigger, let's say, projects towards our portfolio. And of course, we are continuing to invest in technology. We have competent centers of artificial intelligence, extended reality, cybersecurity and data analytics that are shared. Competence centers that are, let's say, leverage for all the companies within the ecosystem to get -- let's say, knowledge to get people to get resources in order to address new markets. So we are continuing as a strategic outlook to leverage synergies -- technological synergies, commercial synergies in order to continue to grow. Some highlights related to EBITDA, M&A strategy. As probably you know, we did an important acquisition, strategic from a large aerospace giant in Canada. We acquired the business from proceeds related to embedded graphics. So a technology that is already present on the market since many years as a leader in this environment that is called VAPS XT. This business will be integrated in our company that is specialized in innovation, in aviation that is space [indiscernible] will have a new product line, so VAPS XT that will be, let's say, exploited and will give us a stronger positioning to the aerospace market because VAPS XT is already used by the main aerospace player in North America, is already used by main players source here in Europe and there is a lot of opportunities of synergies upsell and cross-sell of other products and services around this particular technology. The acquisition, let's say, is strategic. It's also a little bit complex in terms of let's say, operation because this business is divided from Canada, U.S. and Europe. And so all the entities that will join the group will be merged within the pace companies that are already present in Europe and in North America. And we will have a new development center in Montreal. So in North America, in order to continue to bring value also for this region that for us is very strategic. The business from Presagis, let's say, an overall average business over the last year, that is around EUR 5 million, is a software business. So a software vendor means that these EUR 5 million come from licenses and maintenance of the software that was already sold. There is a recurring business that is more or less half of this EUR 5 million, so EUR 2.5 million per year that are the maintenance of this software for the main aerospace giants. And we are planning to have additional advanced services to this software in order to continue to grow and to continue to bring value to the giants in this market. The closing of this, let's say, acquisition will be done in September. So we plan to start to consolidate from the third quarter -- the last quarter of the year. Of course, for this year, there will be no -- not, let's say, a strong contribution in terms of revenues, but we plan to be, let's say, to start to consolidate stronger starting from the next year. So this acquisition was, let's say, done strategically in order to continue to grow internationally to position ourself as a stronger player for the innovation -- for the digital innovation for the aerospace and defense market. Another, let's say -- another, let's say, consolidation that I want also to highlight is related to Switzerland. So because in July, we decided and we proceeded to merge the 2 companies that are operating in [ Switzerland, ] so TXT SagL and Next Solution. Next Solution is an acquisition from 2020. More on the Fintech domain. TXT Next SagL was more, let's say, working on the aerospace and defense market and also in the industrial market. And this, let's say, consolidation was made in order to focus on the geography. So in Switzerland there are opportunities to grow also by, let's say, continuing to bring the overall offering of the group to the region. So the strategy is to push all the Smart Solutions we have in the portfolio, all the capabilities that we have in the markets and are stronger in Italy, mainly. Also to this region that will be addressed by a legal entity that is TXT e-Swiss. And the first result that we also recorded in this period after, let's say, the merging of the 2 companies was, let's say, growth into the manufacturing sector by upselling licenses of Smart Solutions that are mainly present in Italy today, coming from the companies of the group that are LBA and DM solutions. And also our strategic, let's say, positioning into the government segment. That is a segment that, as far as today was present all in Italy, we started at the beginning of the year to apply to several tenders, and we position ourselves on 2 important tender contracts, one related to healthcare for the innovation of a particular region in Switzerland that is implementing the new solution for the healthcare. And then another multiyear tender that was won recently is related to MeteoSuisse. This tender was one, thanks to the synergy also with the space team because we are speaking about weather data that are used in the aerospace market also. And this tender is worth more or less CHF 5 million in 3-year contract, and we are leading a new program of data acquisition, data analysis and data provision for the MeteoSuisse organization. So this, let's say, I wanted to highlight this because since we are continuing with our M&A strategy to aggregate in our ecosystem, vertical excellences. We are also, let's say, doing a rationalization of the offering by region or by offering itself, by putting together companies that are focused on specific high-value and target. And this is an example of Switzerland. Strategically for us it is important because we want to grow by bringing the overall offering to a specific country. In terms of financials, so I've given you some, let's say, highlights. Now we will do some more detailed analysis of the data, thanks to Andrea Favini from Berlin. I want to -- before bringing, let's say, the line to Andrea, I want to remember you that we have a Q&A session by the chat in this call. So you are welcome in order to put some questions that will be addressed by me and by Andrea after, let's say, the financial. So put your, let's say, question on the chat. And Andrea, please go in order to explain some numbers to our investors.

Sure. Thank you, Daniele, and welcome, everyone, to the financial section of this conference call. Starting from the profit and loss of the first half of the year. As already explained by Daniele our revenue were EUR 107.3 million, up 71.6% compared to the half year of 2022. And the M&A contribution was approximately EUR 28 million. So we recorded an organic growth of 14%. In terms of gross margin, net of direct cost it increased from EUR 24 million in the first half of 2022 to EUR 37.4 million in the first half of 2023, with an overall increase of 55.3%. Gross margin as a percentage of revenue in the first half of 2023 was 34.8%, a down 3.7 percentage points compared to the 28.5% in the first half of 2022, due to the different revenue cost mix with the dilution of the Smart Solutions division business related probably software solutions, again, the consolidation starting from the last quarter or 2022. Also, this company made a significant volume compared to the group consolidation volumes. In terms of indirect costs, we reported an increase in all the items with a significant increase in commercial costs where the group pushed in order support the accelerated group plan with the new investment for events, exhibition and to enforce and to strengthen the commercial and management team. And in fact, in terms of commercial costs, we recorded an 83.4% growth compared to the first half of 2022. In terms of R&D expenses, as already highlighted by Daniele, we recorded a significant growth of 14%, and this is almost fully organic and we are at EUR 4.5 million in the first half of 2023, with an incidence on revenues of [ 4.2%. ] And I want to highlight one more time that all our R&D costs are expensive within our P&L, and there are capitalization of R&D cost. In terms of General and Administrative costs, the Group in the first half of 2023 recorded EUR 8.4 million with an incidence on revenues of approximately 8%, which is in line compared to the latest quarters. In terms of EBITDA margin, the group recorded a EUR 13.9 million of EBITDA with an EBITDA margin of 13%, down 1.7% compared to the EBITDA margin of the first half of 2022, with, let's say, an increase compared to the gross margin by 2 percentage points because the indirect cost grew at a lower rate compared to the direct cost. In terms of depreciation and amortization, we are at approximately EUR 5 million and consisted of EUR 1.8 million of amortization of intangibles which EUR 1.3 million related to the purchase price allocation coming from M&A. And there are also EUR 2.8 million of depreciation of tangible fixed assets and EUR 0.4 million of impairment losses. And here, we recorded a growth of 95.5% compared to the first half of 2022, mainly related to the allocation of goodwill to other intangible assets. In terms of reorganization and our recurring costs, those are 0 in the first half of 2023 compared to 75,000 in the first half of 2022. And instead, in terms of net financial result, in the first half of 2023, we recorded a positive net balance of EUR 1 million compared to the negative balance of EUR 1.4 million in the same period of the previous year. And the difference in net financial result consisted mainly of the positive effect from the recognition of deferred value of financial instrument for EUR 0.6 million as of June 30, 2023, against the negative effect of EUR 1 million in the first half of 2022 and consisted also of the positive effect for EUR 1.99 million for the lower debt recognized relating to the commitments undertaken by TXT in the context of the acquisition for which for the purpose of earnouts, TXT has guaranteed the doubling of the value of the TXT [indiscernible] consideration paid. So in terms of earning deferred taxes, we are at EUR 9.99 million, [ 9.92% ] of margin on revenues and with a significant increase compared to EUR 5.2 million as of June 30, 2022. And this is also driven by the different, let's say, financial results in the 2 different periods. In terms of net profit, the Group was also able to record, a new record for the first half year with an important net profit margin of 6.3% versus the 5.6% recorded in the first half of 2022, with an overall increase of net profits of approximately 93%. If we move to the second quarter of the current year, we have revenues of approximately EUR 55 million, plus 71.7% compared to the second quarter of 2022, with an organic growth that is really significant, almost 17%. And also a significant push in the commercial cost. So the effect described -- while I describe, let's say, the year result is mainly driven by the second quarter of the year when the commercial investment more than doubled compared to the previous year. In terms of EBITDA margin in the second quarter of the year the group was at 12.9%, with a drop of 3.8 percentage points compared to the second quarter of 2022. And in terms of depreciation and amortization, the effect is that the same as commented for the first half of the year and also in terms of financial income and taxes, we recorded, let's say, a constant trend compared to the first quarter of the year. If we move to the -- at the net financial debt as of June 2023. Next slide, please. An adjusted net debt is equal to EUR 38.9 million, an increase of EUR 1.6 million compared to EUR 28.3 million as of December 2022. With the main disbursement of the period related to the repurchase of treasury shares for EUR 8.5 million. The payment of dividends for EUR 2.1 million and investment team in minority interest of Simplex for EUR 3 million and last LAS LAB EUR 0.3 million. The disbursement of the period have been almost fully offset by the cash generated from operation during the first 6 months of the year. The main items of the adjusted net debt as of June 30, 2023, consists of cash of EUR 65 million with the major Italian banks. Financial estimated fair value of EUR 28 million, which included investment in [indiscernible] guaranteed capital for EUR 31 million. A bond loan for EUR 0.5 million and government securities and bond with an overall medium low risk profile for approximately EUR 7 million. In terms of current financial debt as of June 30, 2023, which is equal to EUR 1 million, it consists mainly of EUR 60 million related to the current portion of the noncurrent financial debt. 17 million for other short-term loans, mainly hot money lines and the EUR 3 million related to the short-term portion of the debt for rental and visa following the adoption of the accounting standard IFRS 16, plus EUR 1 million for the estimated disbursement for [indiscernible]. So the short-term financial resources are equal to EUR 22.5 million in the first half of 2023 and lower by EUR 7.8 million compared to year-end 2022. If we look at the noncurrent financial debt as of '22, 2023, they amounted at EUR 64 million, and that consisted of EUR 54 million for the portion of medium to long-term loans with a maturity of more than 12 months. Then we have EUR 4 million for the estimated fair value of the debt for the put call and earn-outs linked to the acquisition. And then there are approximately EUR 7 million for the medium to long-term portion of the debt for the payment of rent and the lease of offices, cards and printer for all installments until the end of [indiscernible] contract following being the adoption of the accounting IFRS 16. The adjusted net debt -- net financial debt includes also -- the adjusted net financial debt in EUR 9.9 million of debt referred to IFRS 16, up EUR 2.7 million from EUR 8.5 million as of December 31, 2022, and the EUR 4.8 million of debt were earned out and put, call option for the purchase of minority interest. The unadjusted net financial position as of June 2023 was equal to EUR 23.5 million, down EUR 16.5 million compared to the unadjusted debt due to the reclassification of fixed investment in Banca del Fucino from fixed asset to the financial assets. If you move to the next slide, the balance sheet statement as of June 20, 2023, which shows fixed asset of EUR 119 million, up a EUR 3.5 million compared to year-end of 2022, and we have intangible assets of approximately EUR 77 million, which mainly consists of goodwill for approximately EUR 64 million and the customer relationship linked to purchase price allocation on M&A for approximately EUR 11 million. Reduction compared to year-end 2022 is related to the depreciation -- to the amortization of the period. Tangible fixed assets as of June 30, 2023, are of EUR 20 million and consists mainly of [ hardware ] and building a rental -- lease contract for offices, cars, printers following the adoption of accounting under IFRS 16. Intangible fixed assets are up EUR 2 million compared to the year-end 2022, mainly for the CapEx of the period. In terms of other fixed assets, they consistent mainly of the investment in Banca del Fucino with fair value of EUR 16.5 million constant compared to the year-end of 2022. And the increase of EUR 3 million compared to the year-end 2022 consisted of the effect of the equity investment and the new associated companies, Simplex mainly. In terms of the net working capital, TXT reported a drop of approximately EUR 4 million which is attributable to the reduction in the trade receivable compared to the year-end 2022, partially offset by the increase in the inventories related to the work in progress to our current ongoing projects and by the decrease in trade payables, tax payables and other payable and shorter-term liabilities. In terms of severance and noncurrent liabilities, we recorded an increase of EUR 0.5 million. And instead, in terms of shareholders' equity, there is a reduction of EUR 2.5 million which comes from the effect of the positive profit of the period, offset by the buyback period and by the effect coming from the equity resource. If we move to the next slide, there is -- we can see the shareholding structure as of June 30, 2023, which show a constant, let's say, stake for Laserline and L.V.O. Global Asset Managment to 30% and 3%, respectively. And then we recorded an increase in treasury shares compared to the year-end of 2022. And a slight increase in the market which compensated a slight decrease in the manager, let's say, shares related to the exit of a manager that entering the 60, let's say, project in 2018 and retiring in the 2023. If we look at the dividend and treasury share repurchase in the period, in the first half of 2023, the disbursement was approximately EUR 10.6 million, of which EUR 2.1 million related to dividends and EUR 8.5 million related to repurchase of treasury shares. In terms of market data, in the first 6 months of 2023, [indiscernible] price recorded an official high of EUR 22.85 per share on June 20, 2023, and the low of EUR 12.86 per share on the second of January 2023. As at June 20, 2023, the share price was equal to EUR 22.35 per share. The average daily trading volume on the stock exchange in the first 6 months of 2023 was [ 263,000 ] shares, up from the daily average of 24.3% in 2022. Treasury share as of 30 June 2022, where -- 30 June 2023 were EUR 1.92 million, representing 9.34% of the issued share at an average recurring value of EUR 6.56. Treasury share were 906.600 as of December 31, 2022, and the increase of around 310,000 shares is to be attributed to the buyback plan net of the consideration payment shares in the context of the 2022 M&A. In the first 6 months of 2023, in fact, approximately 140,000 shares were transferred to the vendors and current manager of TXT and around 450,000 shares were repurchased at an average price of EUR 18.89 per share. We are done with the financial section of this conference call. Now we are going through your Q&A. So Daniele, we are ready to go through the questions received.

Thank you, Andrea. Thank you so much for this explanation, okay, about numbers. So we can go through more of the questions. Andrea, if you can read the questions coming, I can answer to them. So...

Sure. I'll start from the first question related to the acquisition of Ennova. So Andrea Randone from Intermonte is asking, can you tell us how the integration with Ennova is going on? What was the margin in the first half of 2023?

Okay. So Ennova, let's say, was consolidated starting from the last part of the last year. So it's 6 months more or less that is within the group. And for sure, there are several initiatives of synergies that we are driving through Ennova, especially because we are reentering the market that TXT was present several years ago, so the telco, gaming market that is a new market for us, as far as diversification. So there are a lot of cross-selling, up-selling opportunities. So the main initiative we started with Ennova team are commercial ones. So to go to this large player in order to present the overall offering. So we are in initial phase of starting with new opportunities, new possibilities that we want to close and to start for the second half of the year. So as far as today, the main integration also that we implemented in this initial part of the year is to put together the development, so the software factory of innovative products that were within the Ennova perimeter together with Assioma that is another company of the group with a strong software engineering capabilities. So these 2 teams are working together to address the market and they started to do integrated projects for the large customer of Ennova itself. So -- we are bringing synergies, in terms of resources, in terms of technologies, in terms of capabilities. Ennova is also pushing some commercial activities. We started an initiative with LBA, LBA that is another company of the group with a proprietary solution for digital payments. So in order to address the already present customer base, especially in the gaming segment of Ennova. We are implementing a new product that we will launch and we are starting to bring to market and will bring value in the second half of the year. So summarizing this the main activities initiatives that are open with Ennova are commercial ones to address their large customer base with the overall offering of the group. And the second one is technological synergies between the 2 teams related to software engineering capabilities that are in Ennova and Assioma. In terms of margins, so Ennova has a large footprint, in terms of revenue, so the contribution of revenues coming from Ennova is important to the overall results of the Group. The overall margin they recorded in the first half of the year is between 11% and 12%, more or less, okay? There is still a space of improvement because we are also implementing a rationalization of all the general services costs at group level. So as you know, probably I have already told in the first meeting after the first quarter, we have reorganized the general services team in the holdings, so TXT Solutions that is serving all the company of the group in order to do -- implement economy of scale. And this process, of course, is ongoing. So some results are coming also in the first half of the year. Of course, the benefit of this organization will come later, also in the rest of the year and the year -- following years. Of course, having these margins for a big amount of revenues as the dilution of the overall group margins still being a service company, having an EBITDA margin of 11% to 12% is the target we want to continue and to push and it's a reasonable target for the kind of the business they are addressing. Another highlight is, of course, Ennova is operating in the telco industry that is a very stable already consolidated market, and there is no strong space in order to improve so much the profitability of this area. Even if we are implementing several innovative solution based artificial intelligence also for the vast caring that will optimize the service level and bring value in terms of overall profitability. I think I have answered to the question.

Thank you, Daniele. Then we have another question about the detail behind our R&D investments. We said that we invest approximately EUR 4.5 million in the first half of the year. If you can give us a bit more color?

Yes. So EUR 4.5 million out of EUR 20 million of revenue is coming from the Smart Solutions. So our strategy of investment is based on our Smart Solutions portfolio. So this is a strong value proposition also against the competition because as an overall group, we have the capability to advise customers in terms of innovative processes. We have a capability to deliver software engineering capability to innovate their products but having a proprietary portfolio of vertical solution is a strong asset in order to capture new opportunities and position ourselves as a valuable partner in the customer base that we have. So the EUR 4.5 million out of EUR 20 million is more or less 25% of the revenue of Smart Solutions are reinvested in our portfolio of products because for us, it's very strategic to continue to invest in technology and have solutions that are ahead of the competition. So we are investing in artificial intelligence, we are investing in virtual reality, extend the reality, cybersecurity, all the technology that are enabler for the transformation of customer products and processes. So out of this EUR 4.5 million, they are distributed among the overall portfolio that we have. Of course, there are some areas in which the investments are more. We are speaking about the less mature products. The products, for example, are based on artificial intelligence for the anti-money laundering this one that is the highest peak of investment with respect to the other. But let's say that this EUR 4.5 million are distributed almost equally among all the product portfolio that we have in order to continue to be ahead of the competition by the technology and by the solution that we are offering.

Thank you, Daniele. Thank you so much. Then we have another question related to the M&A plan and activity. Can you comment about your ongoing M&A activity and remind us what is your financial flexibility for acquisition?

Yes. So as we stated also at the beginning of the year, we are strongly committed in continuing to grow our ecosystem of companies to do additional acquisitions. First half of the year, reported, one, let's say, acquisition strong, that is the Presagis business related to embedded graphics. So in order to go internally as explained before, and we had 2 minor investments in 2 startups of Smart Solutions in the Fintech domain. Let's say that there is an overall slowdown in the market with respect to M&A. So overall, also equity funds or other big players recorded for the first half of the year, an overall slowdown. So you know that the macroeconomic situation is not so strong. So there are a lot of uncertainty related to all the political movements and the war -- and all, let's say, also uncertainty related to financial recession in several countries. So there is a slowdown in the overall M&A activity in Italy, essentially, but also worldwide. And so we are a little bit also slowing down with respect to our initial expectation at the beginning of the year to continue with this process of acquiring companies and bringing companies into our portfolio. We are currently working on two opportunities that we want to close by the second half of the year. And in terms of financial availability, as I said before, we are more or less net financial position, 0 considering our treasury shares. So we have a strong -- a strong portfolio of treasury shares that we want to use to do this operation. So we are planning to invest and to use up to EUR 30 million this year in order to continue. Of course, we have to find the right targets because our strategy is growth by acquisition, but acquiring our sustainable business. So good business generating values already present with a strong customer base or invest in more start-ups in order to bring technology to our customers. And today, also our analysis of the market opportunity is stronger, is more difficult than before because you have to find targets that are in line with our requirements. So we have a good outlook, so the possibility to do other extraordinary operations even if maybe is lower than we were expected to do.

Thanks a lot, Daniele. And we have another question related to the contract we signed in the banking sector that we stated during the call. Can you give a bit more details around this new contract in the banking sector? It was related to Faraday, I guess and the anti-money laundering.

Okay. So it was referred to -- so overall, the banking and finance sector is presented in our slides, recorded a growth of more than 20%, if I remember well, Andrea. So this is a mix of Smart Solutions and the large service contracts. The two drivers are the Smart Solutions is the Faradays, so the anti-money laundering solution. Today, we have a total of subscription, not yet consolidated because maybe they come during the year, but the overall amount for 1 year of subscription is in our portfolio today is more or less 600,000. So more than 0.5 million of subscriptions that are recurrent. So now we are starting to be present in the market stronger and this 600 million will be reported also in the next years coming. Of course, we still have opportunities, so we want to increase this recurrent revenue target, and we are working on it. In terms of [indiscernible] new contracts for services, they are mainly related to bigger work packages based on service level agreements with customers, related to test automation and quality assurance. For this, we are mainly improving our footprint to 3 large customers that are bringing most of the value and we are very well-positioned to have this as the recurrent revenue for the next year. Of course, for service, you sign contracts that are 1 year along in general with the opportunity to be renewed it year-by-year. I cannot give too many details of these kinds of contracts because, of course, when you do these kinds of projects, you need a disclosure from this large customer in order to provide details, it's very complex to obtain them. But what I can share is that these contracts put us in a strong position in order to continue to deliver these work packages also for the next few years.

Thanks, Daniele. It was really helpful. And then we have another question about the EBITDA margin expected for the second half of the current year compared to what we achieved in the first half of this year. So -- this year was the 13% in the first half and which is our expectation for the second half?

So we have, as said before, initiative in order to do economy of scale and cost reduction in terms of general services or administrative cost of the overall group that will bring an improvement of the profitability in the second half of the year. Of course, we started the year with a target to reach 14%. First half is 13%, is more complex now to reach the target, of course, because it means to do very -- much more better than the first half of year in terms of percentage, of marginality, but we are strongly committed to continue to drive. For sure, the outlook that we have for the second half of the year is positive. So at least the result of the first year will be done, okay? First half of the year. So 13% is bottom level that we will reach and we are working hard in order to improve it, in order to reach the target that we are planning to do.

Perfect.

I give an answer a very high level because -- this is the point that we are working harder in order to keep to maintain as promised.

Really good. Thank you, Daniele. Then we have another question. Maybe I can take care of the second part of the question. I'll start with the first part which is asking that -- if I'm right, you mentioned being well positioned to grasp the new public tenders for the [indiscernible] segment. Are you able to give us a bit more color on that side? Just to get an idea, could there be programs as big as the concept consortium?

Yes, we are very well positioned. So also in this case, we cannot disclose information before all the step of the tenders, public tenders are completed. They are not larger as the concept of consortium that we won that was a very huge one that we won last year. So they are smaller, of course, in the overall footprint. But we are speaking about tenders from EUR 10 million to EUR 20 million. So still an important multiyear engagement to customers. So -- this is the information that we again share.

Thank you, Daniele. And the same question, we have seen an improvement in working capital this semester. How do you see the dynamics going into in the second half. Should we expect a significant increase in the work in progress with regard to the acceleration of the growth plan for second half? So it's true, let's say, maybe I can -- a little bit?

Yes, go Andrea. When speaking about numbers you are more of...

Yes, just, historically, the TXT group was always [indiscernible] in this way. So close to the year-end to accumulate more [indiscernible] and work in progress that are then historically reduce during the year and the same trend that we expect also for this year. Let's say that year-end 2022, there was -- all the company currently in the consolidation, perimeter already within our balance sheet. So of course, the EUR 37 million of net working capital need to be balanced with the pro forma revenues, and we were approximately 18% of revenues in terms of net working capital, and we can expect a similar level also for the December -- end of the year, 2023. So between 17% and 20% of the working capital as a percentage of the consolidated revenues. For the pro forma revenues, as planned, we will make new acquisition and increase will be both in the -- work in progress, but also in the trade receivable because working, with -- for example with the government or with some major defense player, close today [indiscernible], a strong invoicing process then, obviously , collected during the first half of the next year. Then we have another question, which is, again, related to the Ennova business. And investor is asking is [indiscernible] Telecom Italia is a significant contribution to Ennova's revenue. Is there a significant change in the team's demand for [indiscernible] in the past few months with all the issues surrounding [ Open Fiber etch ]. So it's more a question specific to our exposition towards TXT team and any issue...

Yes. So yes, [indiscernible] is a significant contributor to our revenue, of course, because operating in the telco market, especially in Italy, Telecom Italia is the larger player. And of course, as you know, Telecom Italia is under, say, a transformation phase. So of course, there is uncertainty when you have a large organization that is changing skin. Nevertheless, telecom is doing also good results. So if you attended and you see the results of Telecom for the first half of the year are positive in the ICT demand, at least for this year is in line with the expectation. There will be no, let's say, a big change with respect to our plan. Of course, there is uncertainty for the future because it is under transformation. The other thing is that Telecom has also telecom TIM Brasil that is controlled by TIM that is also performing well, that is also customer that have different dynamics with respect to the Italian counterpart. So we are very well positioned on the overall footprint of telecom. And we think that -- of course, we have to build for the future. And what we are doing is also to -- a [indiscernible] because, yes, telecom is an important customer, but there are other telco player, other gaming players. So there are other customers that are growing, and we are also pushing to diversify more the business with respect to the past business of Ennova, now that Ennova is a part of larger group as TXT.

Thank you, Daniele. We have one last question. When we will see the impact of the new public administration contracts in your sales growth? I think we are referring to the one already acquired I would say...

So we are already recording the growth coming from this contract because as stated during the presentation, the government segment was growing faster than the other areas in which we are present. We have still capability to grow with this part because when you start up the project, it's a phase of phaseout in which you do more activities and the ramp-up of the team itself. So already, the first half of the year is recording this growth, and it will continue in the second half of the year, of course.

Thank you so much, Daniele. We currently don't have any other question...

Okay. We can just go to summer vacation, no? In Berlin, we work all day August and all the rest of the year. So thank you very much for attending this meeting. I hope that we give you, as usual, a lot of transparency on what we are doing. So -- and for us, it's very important to have our community also of investors that are engaged. We are also recording a good performances of our stock price in the stock market. So the management of the team of the old company of the group. Our Chairman is also strongly committed in order to continue with this growth plan that is very consistent, quarter-by-quarter. So we are very committed. We want to continue. Thank you very much for attending and have a nice summer break for who is going to have summer break. Thank you, Andrea. Thank you very much.

Thank you, Daniele. Thank you, everyone...

See you for the 9 months results in 3 months. Thank you very much.

Thank you. Bye-bye.