Wiit S.p.A. (WIIT) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Wiit First Half 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Cozzi, CEO of Wiit. Please go ahead, sir.

Good afternoon, and thanks, everybody, to joining this conference call. This morning, the Board of Directors approved the results of the first half year annual results. You can follow the presentation with the document I sent. And by the end of the presentation, we are here available once we answer the question. With me today are Francesco Baroncelli, Head of M&A; and Stefano Pasotto, our CFO; and Cocco Francesca, our Investor Relations. I'll start with the highlights in the presentation. You can see Page #1. Persistent growth in sales of 54%, mainly from consolidation of the acquiring company last year. I remember that the last quarter of 2021, we acquired in Germany, Boreus and Gecko Group, the names was release for the 2. And this year, we have a full consolidation of the figures. But main important is the result of the organic growth. With the result, we are not really very happy for these results because the contribution of Wiit is very, very high. 14% was the organic growth of Wiit itself. And the pipeline -- the sales pipeline is very, very high. I think it's the better pipeline we have in the last 3 years. And we increased a lot of new customers, and the new customer will be increased the opportunity to upselling in the next 2 years. General distribution was higher and our -- and after a year we have a specific guide with the breakdown of revenue and EBITDA. The profitability is very, very good, roughly EUR 20 million of EBITDA, EUR 19.7 million compared with 14 plus 13%. Thanks to the concentration of our core business, high value local services and starting the economic scale achieved in the -- in general for the cash cutting of the -- the percenter cost of the acquired company. I remember, limited business acquired in Germany, with the define still EUR 1 million of synergy is just in the -- it is ongoing. And now we are working hard to obtain all the cost synergy about the ERPTech. ERPTech is the last acquisition in Italy. We closed the acquisition by the end March. And just in the second quarter, we started to obtain the cost synergy. Mainly the result will be the next year, but just in the second half, our expectation is to increase the margin will be back for the cash cutting -- cost cutting. EBIT. EBIT adjusted was EUR 10 million compared with EUR 7.8 million, plus 45%. You have to consider that we have more amortization for EUR 2.7 million. So we increased the margin with more amortizing cost related to the CapEx of the last year. Net profit increased a lot 21%, 9.1% despite high cost of interest rate because in the first half, we are accounting all the interest rate about the bond issued last October last year. In the net debt position, we have closed with EUR 159 million includes EUR 10 million of IFRS 16 impact of the rent. We have EUR 4 million of the full acquisition cost of pretax and roughly EUR 70 million of CapEx, payment dividends are EUR 8.1 million and total buyback are roughly EUR 5 million. The value of the treasury share in portfolio is approximately EUR 24.5 million if you consider the market value by the end of June. So I go to -- jump to -- to shortly to the -- jump to the Page #3. You can see the breakdown of revenue and EBITDA. The revenue is higher in Germany than in Italy. This is a very, very good result because our strategy is to increase a lot the foreign revenue. And in these figures, naturally, we don't have the positive impact of the last acquisition we closed by the end of August, early September, the Lansol open good signing, the closing was last year -- last week. So we have sure for the last part of the year, more revenue in Germany than the first half. The same result would be -- it was in the term of EBITDA profitability is roughly 50-50. Our expectation in Germany is to have better in the second half of the year, and the first half because all the contracts signed in the first half are -- we started to invoice with the customer in the second half of the year. Very important, the recurring revenue, the Page #4, you can see recurring revenue with itself is roughly 89.7% of the total revenue. But in general, group level was 76%. This percentage we want to increase in the future because the strategy will be to reduce the revenue with low margin, low value. I give an example, our software sale or consultant. We have naturally inside the acquired company, a residual part of this business. We want to reduce progressive in the next year and increase the recurring revenue group level at the same level of the week itself. Breakdown of EBITDA. The Page #6, a jump. You can see in the slide the breakdown of the single identity. You have to consider that in almost, we merged all Italian companies and by the end of the next quarter, we disclose naturally figures of with include the merger company. So this is the last quarter when we have the single breakdown for Italian market. With margins stable. It's 42% then compared with 41.8%. But the second quarter was just increased to 44%. Market margin grew a lot from 30% to 41%. Italian margin increasing from 25% to 28% in the first half. The last is big reason because different the mix of the revenue. We have a lot of hardware sales in the first half of the year. We want to color little bit in the second half. [ MyLoc ] margin decreased mainly for the cost of energy from 47 to 57. And I want to remember that we have just signed with the [indiscernible] energy, a future price of energy reduced 70% by the January 2024. We have a fixed surprise for this year and the 2023 year. But in 2 years, we want to reduce -- we have obtained to reduce the cost, and we have to recover it to the old margin. Mivitec increased from 21.8% to 28%, and Boreus was season and that was roughly stable. EBITDA margin, in the first quarter, we entered the group is low. It's a total what we have expectation because when we bought this company will pay a low price the company because the profitability was poor. And we are just starting to obtain cost synergies. We are very happy in general for the acquisition because reinforced our skill set. And at the moment, all the clients remain in late, we don't have leaps of the care -- [indiscernible] of the client. And we have just activated roughly EUR 1.2 million EBIT value of cost cutting. In the next year, we have the full results of these synergies. Okay. Net debt, a short picture on Page 8, increase mainly for the strong CapEx. I will just remember that for this fiscal year '22, we have EUR 12 million of extraordinary CapEx related to the building of the new data center, one in Düsseldorf and the second one in Milan. And for 2023, were expectation to return into our historical trend in terms of CapEx in the range from EUR 20 million to EUR 22 million for per year. With the same like-for-like limited fleet, if you have additional M&A could be a little changed. But like-for-like, we are -- our expectation is to reduce and return to our historical values. The net debt is perfect for -- as a share buyback for roughly EUR 5 million and the payment of the last part really of Matika for EUR 3.5 million, just managed in August. And I remember the value of the share that we can use for pay future M&A is roughly EUR 24.5 million. Okay. I think this is all. We are ready to Q&A session.

This is the Chorus Call operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Giorgio Tavolini of Intermonte.

I was wondering if you can double check the organic growth for the parent company in the second quarter. Since in the first half, it was 14%. I was wondering, if it's correct, 19% in the second quarter, there is a double-digit growth quite impressive. And the second point is on the phaseout of revenues related to low-margin businesses, should we expect EUR 5 million to EUR 10 million revenues out from, let's say, the EUR 120 million turnover expectations for this year, but still keeping, let's say, EUR 42 million for this year in terms of EBITDA? And the very last question is on -- well, on the profitability, if you can elaborate more on why the profitability for all the German subsidiaries are -- is declining? I guess, it's mainly due to the fact that is the energy cost and inflation. But if you have additional color, that would be great.

So thanks, Giorgio. About organic growth, it's correct to your assumption. It's 19% in the second quarter, but you have to consider that in the second quarter, we are counting the inflation clause because we charge the customer -- we have inflection for 20 in our contract. And we had a little impact in the second quarter because we are counting all the full -- the half year in terms of inflation. So the real organic growth is roughly 18% in the second quarter. 19% is included the revenue about the inflation growth. The -- okay, the assumption about reduce the low-value service, this is same in our strategy, but it's not a one shop activity. We need 2 or 4 years to reduce totally this part of revenue. Because you can see we can cut EUR 3 million or EUR 4 million yearly every year. On 2023, we want to reduce EUR 3 million another EUR 4 million in 2024. But we can't force the client in a very, very fast change the model. These customers are used to -- they get used to the old model by the our. And by the service remotely, we want to convince the customer to join the cloud model, but is in software. We can push very hard on the customer. So we need 2 or 3 years.

Okay.

Yes. EBIT margin is absolutely confirmed in terms of consensus for the full year.

So we can keep roughly the EUR 42 million expectations we have for the current year, but we can fine-tune the revenues maybe EUR 3 million lower this year and EUR 4 million next year?

Yes, it's correct. The first question, auto energy. In general, the profitability in Germany is only impacted by the increase of the cost of energy. We increased the revenue and increase the cost, and the profitability decrease mainly for the cost of energy. We don't have, at the moment, fortunately, other issue about inflation about the cost of employees. We have a little request to increase, but it's just including our budget forecasted. Because we have 430 unexpected cost related to inflation, only the energy.

The next question is from Michele Baldelli of BNP Paribas.

I have a couple of questions. The first one relates to an item that is also to the last question. I saw that the personnel costs jumped to the level of roughly 26% in H1 -- of sales in H1 2022. That is well above the historical range. So I was wondering because we are seeing a lot about electric cost that, as you have pointed out, also they are increasing in terms of contribution on itself. Just to give us an update, if there is any kind of, let's say, efficiency to be done after the integration of this company in terms of personnel cost sustained profitability. And the other question for late 2 or 3 years about EUR 10 million of cash in from the sale of certain assets, if you can provide detail for what did you sell?

Yes. I start to answer the second question. The EUR 10 million cash in is -- we released an investment in liquid assets and to increase liquidity, okay? Did the EUR 10 million was invested in the liquidity fund for 2 years, and we released to use these funds to finance the Lansol acquisition. About the...

So it was already part of the net debt?

Yes.

Okay.

And it was about the cost of employees increased mainly for M&A. The last part of the increase of the cost of the salaried employees is related to the different perimeter and because consider that in November last year, we closed the acquisition of Gecko and Boreus means we increased 140 people. And in March, we increased 45 people more for ERPTech. So it's mainly related to the change of the perimeter of the company. Naturally, we have a little increase in inflation. In general, we increased the salary organically, but it is not material. It's roughly 4%, 5% yearly increase of the cost of the salary. The last part is related to the different perimeter.

Okay.

Yes, consider that the first year when we closed acquisition, we don't have immediately the synergy. We need 1-year to obtain synergy. So the percent of the salary increase, the first year. But the second year, we can reduce a little bit with efficiently the people. I'll give you an example. When we bought Mivitec, Mivitec work in [ 20 ] person, and now it's just 15%, okay? And we will return to the same FTE of the Milo. But the first year when we aggregate a new company has really increased a bit the average of the -- cost of the people.

Clear.

The next question is from Domenico Ghilotti of Equita.

My first question is on the M&A and organic contribution. So you give a precise contribution from Mivitec from at least 42 the 2 companies and the ERP tax. So the total amount is something like EUR 18.9 million in the first half, and the total growth is 19.2%. So to come out with your organic growth, it means that you are already accounting for some phasing for some declining low-margin sales. Is it correct? So how can -- so you come up with the organic contribution and the M&A? The second is on the synergies. Can you remind us the relevant synergies that you are expecting? I mean, as a matter of bridge on 2023. So there are several investments that you are doing? And if you can give us an update on the current development on the CapEx side, and then on the expected contribution in terms of synergies? And last question is on the pipeline of potential new contracts. Do you -- you are very excited about the level of negotiations. Do you see any risk of postponement or reluctance to close the negotiation, or maybe just to take some time because of the uncertainty in -- going to second half? Or how do you see the clients say, relaxed about this?