SeSa S.p.A.

Good afternoon, and thanks for joining 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 late morning, we made available on the SeSa website our 9-months corporate presentation, that we may follow during the conference call. Today, our Board of Directors has approved the consolidated results as of January 2024.

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

Good afternoon and thanks to all of you for joining our call. Today, we disclose our 9 months results as of January 2024, that, as usual, represents a proxy of the full year trend.

In the 9 months as of January 2024, we reported once again a good improvement in digital skills revenues, EUR 22.4 billion, up 10%, compared to the prior period. And operating profit growing by 16%, with an EBITDA margin up to 7.5% compared to 7.2% year-on-year, with an EBIT adjusted at 6.1%, compared to 5.8% year-on-year.

In the period under review, we increased our market share in all business sectors with solid organic growth. The contribution from external lines, such as M&A is of around 40%, reporting the growth rate significantly higher than the Italian IT market, that grew by 3.2% in 2023 compared to 3.9% in 2022 and 8% in 2021.

To be underline that -- the strong performance of our VAD sector, we achieved with a mid-single digit growth of January 2024 is in comparison with the reference market declining around 7.5% in year '23 and also to be underlined a great 40% growth of the business services sector, that improves its development path as reference player in digitalization of Italian Financial Services industry. We also accelerated our development of digital skills and people up 20% year-on-year with around 5,600 people and 950 new hires last 12 months, by focusing on business applications, consulting and integration services to sustain the digital evolution of enterprises and organizations.

Driven by the so-called trend setters of IT, enabling technological innovation as cybersecurity, cloud, digital platforms, data science and generative AI. In the 9 months period under review, group revenues achieved EUR 2.4 billion, up 10.1% with positive contribution from any of our business sectors, each gaining significantly market share from the competitors.

VAD revenues were up 6%, sustained by our B2B system integration market positioning, with over 80% of business driving from enterprise software cloud networking, less than 20% coming from physical technology. System integration revenues were up by 21.4%, thanks to the great development of the main operating BUs from digital security to cloud, European vertical up to the data science and our enlargement of the customer set from small and mid corporates to meet and large enterprises.

Finally, business services sector reported an outstanding 40% growth, driven by the development of applications and proprietary digital platforms for a customer set that reached around 750 banks, insurance companies and financial services player. Consolidated EBITDA reached EUR 180 million, up by 16% year-on-year, with an EBITDA margin equal to 7.52% higher than the 7.17% as of January 2023.

The VAD EBITDA increased by around 5%, achieving EUR 92 million, with an EBITDA margin equal to 5.10% compared to 4.9% in full year '23. And flat year-on-year system integration EBITDA was up by 21.7%, achieving around EUR 75 million with an EBITDA margin equal to 12.2%, compared to 12.1% in full year 2023.

While business services sector EBITDA reached EUR 11.1 million, increasing around 130% with an EBITDA margin improving to 13.4%, compared to 8.2% year-on-year. Consolidated EBIT adjusted growth of amortization driven from PPA reached EUR 146 million, up by 16.2% with an EBIT margin equal to 6.10% higher than 5.8%, as of January 2023.

The VAD EBIT increased by 6% with an EBITDA margin equal to 4.7% flat year-on-year. While software system integration EBIT increased by 27%, with an EBIT margin equal to 8.3% compared to 8.0% year-on-year.

Finally, business services sector EBIT grew by around 200% with an EBIT margin up to 8.7% compared to 4.1% for the previous year. Bottom line, group earnings after taxes adjusted achieved EUR 84 million, up by 6% year-on-year with an EAT margin equal to around 3.5% after net financial charges that grew to around EUR 24 million, compared to about EUR 9 million year-on-year due to a strong increase of market interest rates.

We also confirm group's financial strength and capability to invest by supporting the future growth. In the period under review, we reported the positive cash flow generation with an operating cash flow of about EUR 120 million last 12 months with around 55% EBITDA cash conversion, net of investments in corporate acquisitions and technology infrastructure for EUR 175 million and divided distribution and buyback last 12 months of around EUR 25 million.

Finally, consolidated net financial position as of January 2024 [ grows active ] for EUR 148 million compared to around EUR 200 million of January in 2023. As a result of net working capital growth from EUR 23 million up to EUR 50 million of January '24, and with significant investment in last 12 months equals to around EUR 175 million.

Now I give the floor to Elisa Gironi, who will provide us an overview of our M&A and integration programs.

Thank you, Alessandro. The external leverage boosted significantly our growth with a 30% contribution to our 13% annual average growth.

12.24%, equal to 12% in revenues and 16% in EBITDA. In the period under review, external lines generated around 40 of our growth, thanks to 13 new M&As the last 12 months, combining about EUR 65 million revenues with an accretive 20% EBITDA margin and by on-boarding over 500 skilled human resources.

We selected the target companies in the group strategic areas of development as security, cloud, digital platforms, data science, representing some of the main digital trends of innovation technology. In VAD sector, after the start of consolidation of [ Altena distribution, ] reference player and managed printing solution with annual revenues equal to EUR 50 million, with the startup of consolidation from the beginning of fiscal year 2024.

We are larger than the new business unit perimeter with the acquisition on July 2024 of main system company with EUR 4 million revenues, EBITDA over 20% and 45 human resources, focused on IT services and solutions for the printing segment. In SSI sector, we continue to improve our coverage on consulting, digital security and proprietary vertical applications.

On July 2023, we acquired 51% of wide 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. On October 2023, we acquired 100% of 3 SME electronics [indiscernible] made in Germany and operating in electronic design software solution, with EUR 3 million revenue, EBITDA over 10% and 15 human resources.

In the Same month, we expanded our proprietary software solution, thanks to the 60% stake acquisition of subsystem company with 15 skilled human resources, annual revenues of EUR 2.5 million and an EBITDA margin of about 20%. Finally, on January 2024, we acquired the 51% of [ smart guide ] compared with EUR 3 million revenue, EBITDA of about 20% and 15 human resources that combines computer-aided engineering software with design and consulting services, providing true dynamics and composite materials simulation solutions.

In business services sector, we closed the acquisition of the majority stake of 130 servicing, reference player in Italy in the master services for the securitization. Company based in Milan, with 155 people, annual revenues for EUR 15 million and an EBITDA margin of around 20%.

Thanks to its organic growth long-term agreements with some strategic partners and customers, as Credit Agricole Italy and Banca Sella Group and the integration of last M&A, our business services sector targets in the fiscal year 2024, revenues for around EUR 120 million, compared to EUR 84 million year-on-year, 800 human resources and about 13% EBITDA margin. We also underline that the starting from 2022 year, we accelerated the integration process of the company's combined SMEs, inside our vertical strategic business units as competence center and up of vertical skills.

The integration process consists in progressive ways from the interest alignment of the legal entities and its minorities inside the business unit to the centralization of HR management, marketing and corporate government, up to the Intel company merger among legal entities to maximize synergies and quality services to our clients. We continue to work on a [Technical Difficulty] line of [indiscernible] in any of our business sector.[Technical Difficulty] industrial basis, more with companies with skilled human resources under a sustainable 5x EBITDA month evaluation with a [Technical Difficulty] and progressive residual stake acquisition to commit in the long term, the key people of the target.

Now I give the floor to Jacopo to provide an updated overview about our HR and sustainability part.

Thank you, Elisa. After a brief improvement of our ESG performance in fiscal year 2023, in the 9-month period, SeSa Group strengthened ESG Program and continue to increase the activities aimed at reducing its environmental impact and consumption of natural resources.

In the 9-month period, we showed record performance in people management, with 5,560 skilled human resources, up by 20% year-on-year, about 950 new hires last 12 months as of January 2024 and further improvement on loyalty rate. We continue to reinforce our education, hiring and in particular, welfare programs with wider and specific measures to support parenting diversity, well-being and work-life balancing.

This thanks to dedicated programs in favor of diversity, equity and inclusion. In terms of our capability to create value for our stakeholders, our last full-year results were characterized by a improvement in ESG performance and achievement of some relevant sustainable development goals.

We reinforce our group purpose that confirm our corporate values and goals of long-term sustainable value creation for the benefit of all stakeholders. Digital innovation, long-term value creation, sustainability and digitalization are the core pillars of our group strategy, defining its purpose.

I also remember the award achieved at the end of 2023, when SeSa was included among the top 7-time companies in the ESG observatory development by the University of Milan-Bicocca, thanks to our outstanding sustainability performance and ongoing strategy to reduce our carbon footprint. Once again, this award aligns the long-standing commitment that our group has always placed on issues of sustainable growth and value generation.

Now I give the floor again to Alessandro for the final conclusions.

Thank you, Jacopo. In the last 4-year period 2020-2023, we invested around EUR 0.5 billion, building a market leader and improving by over 2x our revenues from 1.5 million to 3 million people from 2000 up to around 5,500 and group profitability, moving the consolidated EBITDA margin from 5% up to 7.5% in the full year ending April 30, 2024.

We achieved a unit market positioning with 40,000 customers and great capability to intercept the main digital trends and despite the worsening market scenario to deliver double-digit long-term development path with potential additional growth. We developed the value-added distribution sector completely focused on the business segment and able to grow in a sustainable way over the last 10 years with a 5% best-in-class operating profit margin.

We became market leader in the system integration and software for the mid companies and enterprises in Italy enlarging the customer set to medium large size enterprises with EBITDA margin higher than 12% compared to 7% 5 years ago, growing international presence and proprietary business applications. We also built a new group sector as business services, that is becoming one of the reference player in the financial services industry with a unique offering of proprietary digital platforms and business applications and great value creation that is not reflected yet in our financial statements and store market valuation.

The results as of January 2024, achieving a worsening scenario confirm our great development path in the light of the positive market trend and our strong market positioning. Today, we'll renew the positive outlook for the full year ending April 30, 2024, with a guidance of EBITDA in the range of EUR 242 million to EUR 246 million, up by 15.5% 17.5%.

And EBITDA margin of around 7.6% compared to 7.2% of the previous year and the target of EBIT adjusted in the range of EUR 186 million, EUR 190 million, up by 15.5%, 18% year-on-year with an EBIT margin of around 6.0% compared to 5.5% year-on-year with expected consolidated revenue growth above 10%. In addition to our strong commitment for the full year 2024, we will continue to work and invest in order to expand our long-term growth also to the new fiscal year 2025 by targeting a growth in group operating profit in the range between 10% and 15%, creating value as usual for the benefit of all stakeholders.

Thank you for your attention. Now we stay available as usual for the Q&A final session.

I was just wondering if you could give us a bit more color into the third quarter, particularly because it seems to be a slight maybe deceleration, yes.

So thanks for the question. So as you know, our group is in the middle of our transformation with a growing focus on value-added margin IT sector as between integration and business services.

You may observe that we performed really well over the Q3 of the fiscal year. So in the system integration, we grew by 21% of revenues and around 21% in EBITDA, the same business services sector, where we grew by 43% in the Q3 only and 150% in the VAD level.

The same bottom line, so it means an EAT adjusted that grew in a solid way seaway in both of these 2 sectors. So we have a lower performance in the VAD, with a decline in revenues and in EBITDA.

That is mainly due to the lower trend of the industry in the -- by the way, the distribution to market in Italy declined by around 10%. And in particular, inside them by the segment of green technology.

On the other side, we have to underline that we take a solid, really resilient EBITDA margin in that industry, so the VAD in that segment, we performed with an EBITDA margin that is really best-in-class for our industry for 5.1%. So as a result, we work really well in terms of marginality because we performed with the 7.5% of EBITDA margin in that quarter.

That is the quarter with a higher ratio of revenues from VAD to the seasonality. So that is the way we continue to be confident, not only for the Q4 of 2024, but also in particular for the full year 2025.

Just a question on the business service segment because this is a unit that not only is growing very well, but also is representing the most active new market for you. I wonder if you can comment us about future milestone in this business.

What is the visibility you have gained up-to-date about the developments expected? And if in the future months, are you planning any communication event to better explain your strategy and market business model in this area?

So many thanks for the question. So yes, the business unit and the new division that we started 3.5 years ago moving from 0, we go for several companies with a great focus on digital platform, consulting and business applications.

We built a division that is growing by over 40% last year and also this fiscal year, with the target of revenues between EUR 110 million, EUR 120 million this fiscal year. And with the same perimeter so like-for-like perimeter, a target of over EUR 150 million in the fiscal year 2025 with an EBITDA margin that may be between 13%, 14% as we already achieved in that fiscal year.

So that is a great opportunity market area because banks and financial services players are mainly focused on digital transformation. And we intend to develop proprietary application and digital platform, so that is the way we are improving so well.

100% of the business is recurring. We developed a great portfolio of our customers, that are the main Italian banks and financial services operators.

Recently added a great company operating in the services for the master servicing securitization activity. And so we are really glad to have started this business unit, that maybe EUR 250 million, EUR 300 million revenues in coming 3-4 year period with great EBITDA marginality and also EAT marginality.

I underline again as already did in my previous [indiscernible] during the call that the results of that business unit to the expected results have not been reflected yet in our financial statement, in particular, partially reflected because we have to account several IFRS debt because we invested a significant share of EUR 175 million of investment over the last 12 months refer to this new business unit. And the return on this investment will be generated in particular starting from 2025, 2026.

So that is a great opportunity for us. In terms of communication, we would like to organize, as already announced Investor Day towards any of our stakeholders that we will organize in the first half of next month of June.

And one of the point that we like to underline would be the strategy and the opportunity to go from organization in that area that underline again represent a great opportunity to value creation for those [indiscernible] of all stakeholders, all our stakeholders.

Just I would like to know a little bit more about free cash flow and free cash flow conversion, that you can explain better what is the amount of free cash flow generated in the 9 months and what you expect for the full year?

Yes. Thank you for the question.

So we reported over the last 12 months, a cash flow generation of around EUR 120 million, with an EBITDA cash conversion equal to 55% compared to last 3-year period, cash flow generation that was more or less equal to 70% of EBITDA. That is the result of lower decrease, so a slight decrease in our net working capital to revenue efficiency because the working capital year-on-year improved by around EUR 30 million.

That means after 40 quarters, 40 consecutive quarters of improvement of net working capital to revenue, we suffer for a slight decrease. We plan to recover the positive path experience until now starting from the new fiscal year 2025.

We had around EUR 175 million of investment, of which in particular, EUR 135 million, EUR 140 million, driving from M&As, most of them concentrated in the area of business services and software and system integration. I underline also that in the last 12 months, we distributed dividends and completed by the plan for around EUR 25 million.

So that means we have an improvement, so that means an increase of our net financial position because we moved from a positive net financial position reported for EUR 50 million end of January 2023 to a net financial position that was negative in the sense of net debt at the end of the 9 months for around EUR 50 million. And now we plan to [indiscernible] brand for the new fiscal year because we will expect a lower level of investment for M&A.

So a total amount of investment, not so high as EUR 175 million we did in the last 12 months in order also to capitalize and generate cash flow from the great investment already did. And also a possibility in terms of recovery of efficiency in terms of net working capital revenues.

Obviously, the trend we have in net working capital revenues have been influenced in particular in the VAD, by higher interest rates and a stabilization in the market of interest rates will help us a lot in order to improve to recovery in the tariff management.

I'm not sure if my calculation is right, but it seems that to reach the full year guidance, a certain acceleration is needed in the fourth quarter. So my question is, is there any element, that could have affected the third quarter negatively, which may somewhat disappear or reduce the effect in the fourth quarter?

Thanks for the question. That is very interesting for us.

Yes. Now we expect a good trend of the fourth quarter.

So that means around 9% growth revenues and between 15% and 20% in profitable. First of all, consider that in the Q4, the [indiscernible] revenues coming from VAD is really low.

And so what we expect now is an enlargement of a positive part, the 20% revenue growth and 40% respectively in system integration and in the business services. On the other side, a stabilization of the trend of the VAD that was negatively impacted by really negative performance we have in the green due also to a temporary problem in the supply chain and a strong decrease of the price of goods sold.

So that is the way we plan to recover so well in the Q4. I underline that also in the Q3, we performed really well in a group, except for VAD.

So that is one of the main point. Another point that is relevant in terms of net profitability is that we expect to achieve the peak of net financial charges at the end of the Q3.

And the comparison year-on-year will improve starting from the Q4 and obviously will be in our expectation, that is really our expectation to be able to recover in the full year 2025. So that is the way now we plan and we announced our guidance for the end of 2024 and the full year 2025.

Goodbye. Thank you.

Bye-bye. Thanks to all of you.