adesso SE

Good morning, everybody.

This is Martin Mellmann of Adesso IR speaking. First of all, I'd like to thank you for joining our Q3 and nine months earnings call regarding our quarterly statement we have published today. Within our release this morning, you read that Adesso continued its organic growth path with 13% increase in sales comparing the third quarter as well as the nine months figures. Hence, sales went up to more than €1.1 billion after nine months. Operating profit improved even more strongly, rising by 17% to €77.9 million. Thereof, the third quarter of 2025 alone contributed €40.8 million in EBITDA, underlining the guided stronger earnings contribution in the second half of the year. Outlook remains largely positive, so ADESO sees itself on track to meet the full year guidance. I'd now like to welcome as well as CFO Michael Knopf, who will give us a deeper insight into the figures of the first nine months and the outlook for the remainder of the current year. As always, I'd like you to mute yourself during the presentation. Feel free to open up the channels for the Q&A session afterwards. Participants on phones may want to mute or unmute their microphones via the star key followed by the number six of their phones. Thank you so far. And Michael, please go ahead.

Thank you, Martin. Good morning and also from my side. And yeah, it's always a head start with a look at our... Just a moment. As always, let's start with a look at our revenues. After nine months, we have achieved revenues of 1,084,000,000, which is an increase of 13%. If we look a little bit more in detail into that, we started with 353,000,000 and the growth rate of 11% in Q1. 356 million, a growth rate of 13% in Q2, and now 375 million growth rate, again, 30%. So growth during the year is a little bit accelerating, and Q3, 375 million is our highest revenue per quarter ever. We are pretty happy with this development. These are very exceptional figures, especially if we look at our markets and also the development of our peers. And please keep in mind, the environment is still pretty challenging. Adesso is generating 84% of its revenues in Germany, so we are highly dependent from this market. And actually, so far this year, there has not much change in 2023, 2024, we have seen negative development of our gross domestic product and this year there's a slight increase, zero point something, so not a big change. Actually what has changed a little bit is the view on the future of Germany. I mean, if you look back a little bit, three months, six months, we all were kind of optimistic because of our new federal government, all the announcements, what should be changed, the additional budgets for the armed forces and the infrastructure. So far we don't see any impact from that or not a significant impact from that. And if we look this week into the newspapers and read about all the parts which are already misused from this budget, I think the optimism has lifted a gun or is at least reducing day by day. So I would say the outlook at least for Germany is a little bit more pessimistic than what we have seen a few months ago. On the other hand, I mean, we have coped with this situation so far and we will do this in the future again. If we look at the development of our headcount on the 30th of September, ADETSO employed 11,111 full-time equivalents, which is a growth of 896 employees. 44% of this growth was generated with our foreign subsidiaries, especially in those countries where we build our shoring activities. If we look at the headcount, the average growth since the beginning of the year, this growth rate is 7% compared to last year. Actually, if we look at the beginning of this year, this growth rate was 6%, so we have a little bit accelerated our hiring efforts. We are still cautiously acting, so we still have always a view on our billable utilization, but we think it's the right step at the moment to increase a little bit our efforts. If we look at our sales, as always, we start with a view on our different industries, our nine different industries. And I think the most important message from this slide is ADESO is highly diversified and positioned in the right way. First of all, the most important, the biggest sector just contributes 90% of our revenues, which is public. We have our biggest 10 customers contribute slightly more than 20% of our revenues and the biggest customer this year so far 3.2%. So a very nice diversification. But also if we look at the sectors itself, insurance, banking, health, public, utilities, They are, let's say, dependent on our economic environment a little bit less probably than all the other sectors, especially the manufacturing and automotive. They are not directly impacted by all the discussions on other tariffs or what will be the percentage of the tariffs. So I think this is a very nice positioning at the moment. And if you look at the growth rate of these sectors, it underlines the statement. Endurance plus 20%, health plus 26%, utilities 24%. So very, very nice growth rates. If we look into this in a little bit more detail, insurance is driven by a nice order entry and still a very strong pipeline. Banking also nice progress, plus 8%. Health, 26%, driven by our normal bread and butter business, but also by one big project we won in Q2 with our car. Public, plus 7%. Actually, with public, you see a little bit our concerns. We started in Q1 with 11%. After six months, it was a growth rate of 9%, and now it's 7%. It's still growing, and let's say the delays, the push-outs from budgets after the German election, probably the situation has normalized. However, we don't see the impact from these additional budgets for infrastructure or armed forces so far. If we look at automotive, minus 7%, it's not nice, but not really surprising. This industry at the moment is really struggling, and this also has an impact on their IT spending. Yeah, and if we look at utilities, plus 24%, we have a very strong market position. with SAP in this sector, and this is the main contributor to this nice growth rate. If we look at the regions, Germany contributes 84% of our revenues. If we add Switzerland and Austria, we arrive at 95% for the German-speaking regions. Germany itself revenues by 14%, so this is a little bit more than what we have seen for the whole group, where we have seen this growth rate of 13%. Abroad, ADESA has grown with a growth rate of 8%, so on the first few, this growth rate is probably not really sufficient. On the other hand, if we dig a little bit more in detail into this, Switzerland contributes around about 50% of our revenues abroad. And if you look at Switzerland, revenues decrease by 5% in this region. Actually, the situation already has improved. After six months, it was minus 7%, and we expect further improvements in Q4 as utilization has already improved. But if you exclude Switzerland from this view, then we arrive at a growth rate for all the other foreign countries of 26%. Revenue has grown there from 68 million to 86 million, and this is a nice growth rate. And actually, that's what you also can see on this slide, Austria plus 29%, Netherlands plus 16%, Italy, a company, a country where we have support growth with an acquisition some years ago, 26%, and also Turkey contributing Yeah, let's have a look at our EBITDA. After nine months, the EBITDA is 77.9 million compared to 66.5 million, which is an increase of 17%. If we dig a little bit more in detail into this, million in the first quarter, second quarter 19.3 million, and now in the third quarter 40.8 million, which is an increase of 1.9 million compared to Q3 last year. Actually, Q3 last year was a pretty strong quarter. Q3 is always our strongest quarter, but last year it was exceptionally strong. And therefore, the improvement is maybe a little bit smaller as we have wished for. However, it's still a nice development. What are the key drivers for our improved EVTA? First of all, the capacity utilization. We started with a very strong improvement in Q1, a nice improvement also in Q2. Q3 was a little bit more flat. Only a small improvement, not really worth the mention, but that's because utilization in Q3 last year was pretty strong as well. We have seen a slight recovery so far this year with our IT solutions business, also supported by some license sales for our Injure product line in Q2. last year benefited from a release of an accrual for warranties, a release in Q1 last year as a result of the tax audit. And we also have seen some higher material costs. This is actually caused by our role as a general contractor and some of our projects, as projects are growing quite often from the size perspective, we quite often have partners with that. And if we take the role as a general contractor, then our revenues goes via our P&L, but also the material cost related to that. Let's have a look at our EBITDA margin. EBITDA margin improved to 7.2% compared to 6.9% last year and 6.4% in 2023. It's an improvement. It's still a significant way to go until we arrive at our goal, which is between 11 and 13%. We are happy about this improvement, but actually we are really working on that, that we will see further improvements in the future. If we look at some other key figures, we already had a look at our employees, 10,699 in average for the first nine months this year, sales close to 1.1 billion. Gross profit grew by 10%, so a little bit less than sales, which is caused by the increase in material costs. Personal costs increased by 11%, so a little bit less than sales. Other operating expenses, an increase of only 3%. More or less all expense lines have slightly increased, especially expenses for hiring and travel. We have seen an opposite development with expenses for external consultancy and legal fees. If we look at the key profit drivers, utilization, as I already pointed out, utilization has improved this year, especially in the first half of the year. Q3 was, let's say, flat and only a little bit improved. Daily rates, as you might remember, we have started last year in Q4. internal projects to improve our daily rate and actually there have been some nice improvements in Q1 and Q2. Q3 was a little bit more slack, also caused by the market environment at the moment. We noticed that competition is really increasing and so this makes it difficult to increase our daily rates. License and maintenance. We have seen an improvement here as well, especially license sales in Q2 contributed to that. We are still optimistic that we will see some further license sales in Q4. However, at the end of the day, customer needs to sign the purchase order, so we are still negotiating and waiting for that. Personal cost increase of 3%. There are some key contributors to that. First of all, we have an increase in our salaries. Second, we have hired more senior people or the percentage of senior people has increased within our hiring efforts and therefore this has also an increasing impact on our personal On the other hand, we have increased our hiring efforts in our choring countries. Our colleagues there have lower average salary, which has almost a little bit of the increase, so it's a mix of different items. At the end of the day, it's a 3% increase. If we look at our earnings per share, 99 euro cents after three quarters, which is a nice improvement compared to last year, where we have seen 16 euro cents at that time of the year. Especially Q2 contributed to that, but also Q3 had a positive impact of 20 euro cents in addition to what we have seen last year. If we look at the depreciation, depreciation increased, this is mainly for drive and use items, which is based on IRFL 16 and which is our office leases and company costs. The depreciation from purchase price allocation is slightly decreasing. Income from investments at equity is also a little bit more negative here. Financial result, interest, a little bit less interest to pay due to lower interest rates, so it's minus 8 million. Earnings before taxes might increase from 7.3 to 12.9 million. Because we have a higher pre-tax income, we have higher income taxes. However, the tax quota has improved from 67% to 52%. It's still comparatively high, but there are always certain items which are not tax deductible, and at some group companies which generate losses, we don't put tax assets on our balance sheet. Let's have a look at our working capital, at our balance sheet and especially our working capital. Cash improved slightly compared to last year. Financial debt and net debt, we see an increase of close to 40 million. There are three main drivers for that. First of all, we have increased our shareholdings in PV, subsidiary PV from 70 to 100% in Q1 and same with Adesso Business Consulting from 71 to 100%. This was a cash out of 27 million. We did a share buyback last year in Q4 and also Q1 this year, which was another $10 million. And then we have seen an earn-out payment in June and July this year, another $3.4 million. So in total, around about $40 million, which has increased our financial debt and therefore also our net debt. If we look at our operating cash flow, it's $30 million worse compared to last year. This is caused by our net increase in net working capital by 15%. Revenue grew by 13%, net working capital by 15%. So we are not overly happy with this figure. I would have hoped to see a lower growth rate. at this point in time in the year, but we expect significant improvement as always in Q4 this year and actually in October the development already shows that we are on the right track for that. If we look at our equity, equity decreased by around about 10 million. Therefore, our equity ratio reduced to 22.8%. There are two reasons for that. First of all, the share buyback last year. This 10 million is directly deducted from the equity, and as our revenues are growing, working capital has increased, so the total amount of our balance sheet has increased, and therefore the ratio was also negatively impacted. Operating cash flow, after this line, below this line we have capex and also lease repayments. These repayments are related to IFS 16 and based on the recommendation of the IFRS Foundation, these lease repayments related to company cards and office leases are also shown as capex and therefore We have a free cash flow of minus 69 million compared to minus 30 million last year. Actually, this mainly reflects the increase in working capital. Yeah, let's have a look at our guidance. I mean, at the beginning of the year, our guidance was based on the assumption that IT services will be still an ongoing demand in a recessionary environment. And yes, this still applies. It's still right. And the environment is tough, but different to the past, where quite often IT services was the first thing which was cut. This time it's different. There's still a demand for IT services despite the fact that competition at the moment is increasing. If we look at our guidance, we assume that we will improve our margins, especially driven by a higher utilization. That's right, we have improved our utilization and it's still on the right track, even if the improvement in Q3 was lower than what we have seen in the first half of the year. For the second half of the year, we will see an additional contribution compared to the first half of the year. Actually, that's what we already see in the results of the third quarter. Highest revenues this year so far and also in terms of earnings, EVTA. And only the last one probably is a little bit different than what we expected. Initially, we thought we would see a positive impact by an increased IT spending in the public sector starting in Q3. So far, this didn't happen, but despite that, we were so far able to achieve our goals. If we now look at our guidance a little bit more in detail, we guided for revenue growth to 1.35 to 1.45 billion, which is an increase between 4 and 12 percent. So far we are really good on track. Our achievement of this guidance is between 75 and 80% and we are pretty optimistic that we will end at the upper end of this corridor. If we look at the EBITDA, 77.9 million after nine months. We want to get to our range of 105 to 125 million. So far we achieved 62 to 74 percent. Also, this is on track. Therefore, we confirm, yes, we will achieve our guidance. And EBITDA margin 7.2%. Last year for the whole year it was 7.6%. It's our goal to get at 8% plus X and also this should be still realistic. So at the end of the day we can confirm our guidance and Q4 will probably bring the necessary sales and EVTA together.