SeSa S.p.A.

Good afternoon, and thanks for joining us SeSa Group Presentation. On behalf of SeSa are participating Alessandro Fabbroni, Group CEO; Elisa Gironi, Corporate Governance and M&A Director, and myself as IR and Sustainability Manager.

In the morning, we made available our Q1 2024 corporate presentation on SeSa website that we may follow during the conference call. Today, our Board of Directors has approved the first quarter results, reporting again an outstanding set of economic and financial performance.

Alessandro will open the presentation with an overview of our strategic achievements.

Thank you, Jacopo. Good afternoon.

Thanks, everybody, for joining our call. Today, we disclose our 3 months results as of July 2023 with again strong improvement in digital skills, about 5,200 people, up 20% year-on-year and a great set of economic and financial results despite the slowdown of the reference market.

During the quarter, once again, we improved double-digit revenues and profitability by extending our 12th years consecutive growth from full year 2012 up today and our great path, our cash flow generation by improving working capital management efficiency and reporting again an EBITDA cash conversion about 60%. In the quarter 1 under review, we confirm that 12th year continuous growth with our great average 15% CAGR in terms of revenues and profitability by achieving consolidated quarterly revenues of EUR 776 million, up 16% year-on-year with a consolidated EBITDA to EUR 55.8 million, up 17.2% year-on-year, thanks to our great organic growth driven by the successful market positioning on the main areas of digital innovation as cybersecurity, software and vertical business application, cloud and digital platform.

We continue to overperform our long-term track record and to achieve growth rate significantly higher than VAD reference market trend that now is expected to increase by 3.5% in the year 2023 and by 6.0% in the year 2024. The quarterly revenues growth was mainly organic, that means about 70% with a double-digit contribution from any of our business sectors, each overperforming market trends and gaining market share from the competitors.

Software and system integration revenues were up by 20% in the quarter, thanks to the development of all operating business units, particularly digital security, ERP and vertical applications, digital space and data science. Value-added distribution revenues reported a great 13.6% growth, sustained by its business-to-business market position with over than 80% of revenues driving from enterprise software cloud networking and green technology and less than 20% coming from physical technology as servers and personal computers for the business segments without any exposure to consumer technology.

Finally, Base Digitale Group reported an outstanding 53% growth year-on-year. targeting full year revenues equal to about EUR 120 million compared to EUR 84 million in the previous year.

Consolidated EBITDA reached EUR 55.8 million, as explained before, up 17.2%, with EBITDA margin equal to 7.20% higher than the 7.10% as of July 2022. Value-added distribution EBITDA increased by around 10%, achieving EUR 28.4 million with an EBITDA margin more or less stable to 4.80%.

System integration EBITDA was up by 21.4%, achieving EUR 23.2 million with an EBITDA margin equal to 12.6% in compared to 12.5% of the previous year, while business services sector EBITDA reached EUR 3.1 million, increasing around 100% with an EBITDA margin equals to 10.9% compared to 8.5% as of July 2022. Bottom line, group earnings after taxes adjusted achieved EUR 26.5 million, up by 11% year-on-year with an EAT margin revenues equal to 3.40%.

Thanks to the group higher focus on recurring revenues, we reported a steady cash flow generation. We achieved an operating cash flow of about EUR 130 million last 12 months, net of investments in CapEx and M&As for EUR 160 million and dividend distribution buyback plan in the same period by around EUR 25 million.

The consolidated net financial position as of July 2023 was active. That means net liquidity for about EUR 208 million, stable year-on-year.

We also continue to enlarge significantly our perimeter operation with some strategic bolt-on M&As contributing to group growth by about 30% of total Q1 revenues and equal to 35% at operating profit level. For the full year 2024, now we expect an external leverage contribution from the M&As we already signed and announced with additional revenues equal to about EUR 100 million with an EBITDA margin higher than 15%.

Now I give the floor to Elisa Gironi, who will provide us a general overview about our M&A program.

Thank you, Alessandro. The external leverage continued to contribute in a significant way to our growth with a pace of 30% in the Q1, in line with our historical track record.

Since January 2023, we closed 9 new M&As with about EUR 100 million revenues contribution expected in fiscal year 2024 and an accretive margin about 15% EBITDA margin, onboarding 500 skilled human resources. .

We selected the target companies in the group strategic areas as security, cloud, digital platforms, data science, digital workspace, representing some of the main digital trends of innovation technology. In the VAD sector on May 2023 following the antitrust authorization, we executed the acquisition of 55% stake of Altinia Distribuzione, reference player in managed printing solutions with annual revenues equal to EUR 50 million, with the start of consolidation from the beginning on new fiscal year.

In software integrators, last May, we closed the acquisition of Visualitics consultancy company focused on the management analytics with 30 skilled human resources, annual revenues of EUR 4 million and an EBITDA margin of about 20%. On June 2023, we acquired the majority stake of Informetica company with EUR 6 million revenues, EBITDA over 10% and 40 human resources focused on SAP consultancy.

On June 2023, we [indiscernible] our new digital workspace with the acquisition of Sangalli Tecnologie company with 30 skilled human resources and revenues of about EUR 7 million. with an EBITDA margin equal to 12%.

On July 2023, we acquired a majority stake of Wise Security company, leader of cybersecurity Spanish market with expected annual revenues over EUR 10 million and EBITDA margin equal to 20% and 120 human resources. The buildup of new Business Services Sector focused on financial service industry was driven by a new strategic significant acquisition.

Following the Bank of Italy authorization. we executed the acquisition of 51% stake of 130 servicing reference player in Italy in the master services for the securitization industry based in Milan, with a team of about 130 human resources.

Annual revenues for EUR 15 million and an EBITDA margin of 20%. Thanks to its organic growth, the long-term agreements with some strategic partners and customers as Credit Agricole Italy and Banca Sella Group and the integration of last M&As.

Our Business Services Sector targets in the fiscal year 2024 revenues for around EUR 120 million, 800 human resources and over 12% EBITDA margin. We will continue to work on a wide pipeline of M&As in order to attract on industrial basis, small mid companies with skilled human resources under a sustainable 5x EBITDA multiple evaluation with earn-out mechanism and progressive receivable space acquisition to commit in the long term, the key people of the target companies.

Thanks to the 9 M&As already closed since January 2023 and the pipeline of new targets. We intend to replicate the results of the last year with about 15 M&As and combined perimeter of over EUR 100 million revenues and 500 new people, considering not all Italian targets, but also some opportunities across Europe.

Now I give the floor to Jacopo to provide an updated overview about our sustainability path.

Thank you, Elisa. After a great improvement of our ESG performance in fiscal year '23, we confirm our strong commitment to value generation for our stakeholders, and we continue to invest in sustainability, environmental protection, supporting intensively our customers to be responsible on the management of natural resources, enabling also companies and organizations, thanks to digital technologies to maximize efficiency and to develop the production for renewable resources.

On the first quarter fiscal year 2024, we continued our long-term development on renewable resources, achieving 5,188 employees with over 450 hires in the last 7 months, targeting, again, the line of 5,300 people at the end of the year 2024. To announce our loyalty rate, we continued to consolidate the welfare programs on June 2023.

We launched the new annual welfare program to support parenting, diversity, well-being and work life balance of human resources, and we [indiscernible] our programs in favor of diversity and inclusion. Our commitment is still focused on key priority areas, including equal opportunities, ensuring fair gender representation, reduction of our environmental impact emission with generation, contribution to economic growth with long-term value generation for our stakeholders and support for local communities and responsible relationship.

We will continue to work intensively to develop our ESG program by focusing on energy and natural resources efficiency and energy production for renewable sources to further improve our scores of main sustainability ratings. Finally, I remembered that last shareholders meeting as of August 28 approved a dividend distribution equaled to EUR 1 per share compared to EUR 0.9 for the previous year, that will be paid on September 20, 2023.

The shareholders meeting also approved a buyback plan to serve the new stock driven plan for the group key people. Now I'll give the floor again to Alessandro for his conclusion.

Thank you, Jacopo. So after an outstanding full year 2023 with industrial achievements of record growth rates, revenues up 22% and profitability up by 25%.

We achieved a great start on new fiscal year in line with our expectation and despite the worsening market scenario unpredictable 6 months ago by capitalizing our competitive advantages and financial solidity and our great capability to gain market share from competitors in the phases of market deceleration. We continue to improve our main industrial KPIs as a customer set, achieving 40,000 enterprises, revenues with a growth pace of over 15% higher than expected, human resources that achieved a line of 5,200 people as of July 2023, with record 800 internal hires over the last 12 months.

We really did a great job evolving our organization by integrating last bolt-on M&As and developing new strategic business lines, with EBITDA margin over 10% from cybersecurity to data science and digital platform, while we continue to evaluate the pipeline of new potential targets with a creativity EBITDA margin and perimeter operation, both in Italy and across Europe. Corporate and enterprises demand on digitalization is confirmed solid with higher focus on the most innovative areas of IT as cloud security, data management, data science and also AI in a way.

These digital enablers are polarizing most of our IT investments and representing SeSa Group core strategy and core focus on investments by creating a unit business model across Italy and Continental Europe. Considering our great start of the year, the contribution expected for the pipeline of M&As, as well as our resilience and capability to outperform the market.

Today, we confirm the positive outlook for the full year 2024. With the target we announced last July, that means consolidated revenues for the full year expected in the range of EUR 3.2 billion, EUR 3.3 billion, an EBITDA increase between 15% and 20% year-on-year in the range between EUR 240 million and EUR 250 million with a renewed commitment to achieve.

And it's possible to outperform them as we often did in the past by accelerating the business in particular in the second half of the fiscal year. Thank you for your attention.

Now as usual, we stay available for the Q&A final session.

First of all, congratulations for the results. These questions are 4.

The first one is a comment on, I mean, August and September, you confirm the guidance. I expect the trend is positive, but if you can give us some color.

The second question is about a well debated topic in your business model. So if you can remind us the recurring part of your business, if you can describe this feature?

The third question is about M&A. If you can provide some comments about the pipeline you are seeing at the moment?

And if you have any specific segment of particular interest? And the fourth question, the last one is, if you can provide a comment on what you expect in terms of net financial position evolution in the remaining quarters this year?

So thanks for the question, Andrea, So first of all, we experienced a very positive trend of orders in the month of August and September. So we are very positive also to be able to face an acceleration of the market in a positive way, I mean, for the rest of the calendar year.

That will be in line with the market forecast that now estimate an acceleration for the full year -- for the calendar year 2024 with an expected growth higher the line of 5% compared to an expected growth of IT in Italy equals to 3.5% for 2023 year. Our business model is recurring in our way due to the great job we did in particular inside the software system integration and business services, both sectors that are more or less 100% recurring with 3 years -- 2-, 3-year up to 4-, 5-year services model.

As for value-added distribution, most revenues are not recurring even if a revamped share of enterprise software is becoming -- recovering. So that means as of today, we have range between 20% and 30% revenues recurring also inside value-added distribution that is improving quarter-by-quarter.

Our M&A pipeline continues to be really strong, due also to some trouble -- some financial troubles of the market. Our capability to attract is improving, not only in terms of human resources, but also in terms of M&As.

We closed, since January 2023, several strategic M&A. Among them, I remember the acquisition of Wise Security Global in Spanish market that is a leading cybersecurity player in that area.

But also the great acquisition in the consulting services side -- Business Services Sector of 130 servicing after the Bank of Italy authorization that we closed at the beginning of the quarter. As for the trend on our net financial position, if we consider net financial position before IFRS debt, net financial position is stable with cash and liquidity over the line of EUR 200 million, and we expect to achieve about EUR 250 million at year-end in terms of net liquidity.

If we consider net financial position after IFRS debt, we have about EUR 190 million, EUR 200 million of IFRS debt consisting in particular of IFRS debt for earn-out and put options. So that means for our future acquisition of minority stake towards minority shareholders.

So these are not interest-bearing debt. And so net of IFRS that we may expect a net financial position more or less in breakeven during the year and at year-end.

Congratulations on the results. When you say the Italian market or your market is slowing a bit, could you give us a bit more color on that?

And is it -- do you think it's going to last another 3 months, 4 months, 6 months? And secondly, are you -- you've obviously got a good pipeline of acquisitions.

Are you finding it a bit harder to buy companies at the price you set? Or are you seeing some inflation coming into having to sort of buy the right companies in your M&A program?

So good evening and thanks for your question. So first of all, the view that we have on the trend of Italian market is positive.

The market became in the last 6 to 9 months more selective. So that means more oriented to software, our digital transformation more, let me say, most innovative areas of IT for data science, so cybersecurity and less oriented to physical technology that is not our core focus.

What we expect is a general recovery of the market in coming quarters, also considering the physical technology that is not our core focus. As for the question about M&A, what we are observing is that in a situation, a conditional higher interest rates, we are working in a market with low competitive pressure.

So up to 6 to 12 months ago, we faced a lot of players under private equity or financial partners that try to create aggregation pulls also across Italy. What we are serving is that now our capability to attract is higher and by maintaining the same approach in terms of pricing because remember to all participants to our call that we continue to work under an to EBITDA multiple price equal to 5x that is much lower than the current market fair value.

That is the result of our capability to plan on industrial basis the acquisition to plan together with key people of the target company the future 5-, 7-year period of the company target the plan of integration and to be able also to share the future value creation. We bought in the last 6-, 7-year period more than 60 companies with a combined perimeter of revenues at the acquisition time equals to EUR 6 million -- EUR 600 million revenues and that combined perimeter will represent revenues for more than EUR 1 billion.

So our great capability to develop after the acquisition, thanks to the group synergies is one of the main catalysts of M&A under very equilibrated and moderated pricing. So we confirm that the pipeline is stronger than 6 months ago and with a sustainable price for our organization.

So we are optimistic to be able to maintain the same pace we have since the start of this year.

My question is regarding management services market because it seems the key growth driver of the market. So I'm wondering what your exposure in terms of to this segment?

So thanks for the call. We offer managed services integrated with several lines of business.

So that means security or cloud in the way of hybrid cloud. And so that business unit represent around 5% to 10% of our business sector software and system integration.

So it is not so high in terms of exposure, but we are serving a good trend in terms of orders and backlog.

Yes, we thank every participant of our call, and we stay available obviously with our IR team for additional information. Thank you very much.