adesso SE

Good morning, everybody.

This is Martin Ullmann of Adesso IR speaking. First of all, I'd like to thank you for joining our Q1 earnings call regarding our quarterly statement we have published today. Within our release this morning, you found Adesso keeping up its fast organic growth pace with 13% in sales to €398.1 million. The operating result boosted significantly by 58% to €27 million. This is €9.9 million more than last year's EBITDA contribution. Since the second half of the year in Germany provides a significantly larger number of working days than the first half, a larger portion of EBITDA contribution is expected to be earned later in the year. I now like to welcome as well our CFO, Michael Knopf, who will give us a deeper insight into the figures of the first quarter and the outlook for the remainder of the current year. As always, I 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 um good morning everybody i will guide you now through our q1 2026 financials and um as um always i will start with our revenues Renews came in with three hundred ninety eight point one million is an increase of 30 percent coming from three hundred fifty one point two million. It's important to mention that this whole growth is purely organic. So there is no M&A impact in there. And at this point of the presentation, it makes always sense to look a little bit at the economic environment. 2023-2024 was a difficult time in Germany. Germany, we generate more than 80% of our revenues. Last year, we already have seen a little improvement because domestic product came in slightly positive. This year this improvement continued despite the fact that it's probably less than what at the beginning of the year was expected due to the impact of the war in the Middle East. So economic environment is challenging. However, that's not surprising for us. That's what we expected. And important for us is that the market for IT services, IT solutions is stable, that it shows continued growth. And actually that's the case. So if we look at our Headcount in average compared to Q1 2025 has grown by 10%. And also the year over year increase is exactly 10%. Currently we employ 11,497 employees. It's an increase of 1,036 employees coming from 10,461. 60% of this growth is generated in Germany, which is a year-over-year increase of 7%. And 40% of this growth is generated abroad. This is an increase of 21% year over year. And similar to the last few quarters, this growth is mainly driven abroad by our touring activities in Romania, Bulgaria, and especially in India. If we look at the sales split, Certain things are pretty similar to what you are used to. Certain things have a little bit changed. um the overall perspective actually is the same we are very much diversified um similar to the last um a few quarters um the top 10 customers contributed around about 22 percent of our revenues the top customers so far this year contributed in terms of revenues at 2.9 percent of our mso so we are very much diversified that's pretty important And we benefit from the fact that we are very strong in the right sectors at the moment. It's insurance, it's banking, it's health, public utilities. They are not impacted by all these terrific ups and also they are not directly impacted by the energy crisis, this increasing energy prices. Sooner or later, probably we will feel it there as well. Our customers will feel it, but at the moment, these are exactly the right sectors. And if you look a little bit more in detail into this, the strong growth in endurance has continued 30% year over year. This is mainly driven by the order entry, which we have seen in Q3 and especially Q4. This was very, very strong and it continued also in Q1 this year. Banking also a double digit growth rate, 14% health, a little bit less dynamic than what we have seen in the past, but still double digit. Public, yeah, only 5%. This is somewhat disappointing, but not really surprising. because the order entry in Q3 and Q4 was comparatively weak, only showing a little increase compared to the prior periods. And this is actually caused the order entry last year by the the election in Germany, which after this election took some time until public activity started again. And the impact from these two additional budgets for the armed forces infrastructure has not shown up last year. However, this year in Q1, we see much more activity there. order entry in the public sector has improved significantly. So this is nice. So we expect revenue to improve in the next quarters. automotive yeah so far we were able to um let's say show only little impact from the difficulties in this industry last year only a revenue decrease of four percent this year q1 we were highly impacted from that 20 percent decrease in sales however um that's uh fortunate for us um it's our by far smallest sector Manufacturing also double digit growth rate. Here it's worth to mention that we have done some reallocation. So far, life science was part of health. It's now relocated to manufacturing. We have done that because life science at Adesso is revenues with the pharmaceutical industry, with biotech. And actually, that's more close to manufacturing than to health insurance or statutory insurances. So therefore, we have reallocated that. retail also strong growth rate and utilities again 31 percent revenue increase and as we have seen this in the past driven by our sap activities we are very strong in this sector with our sap services If we look at the sales split, as usual, Germany has shown a strong growth, this time 13 percent. What's very nice that we have seen the turnaround in Switzerland continuing. If you remember, last year we started with minus 7% in revenues, improved this over the year to minus 3% for the whole year. However, we have seen a very nice order entry in Q4 and also Q1 this year, and therefore Switzerland is back on the growth rate, 15%, and Switzerland contributes around about 50% of our revenues abroad. So this is a very, very important change and improvement. Austria and Italy, again, double-digit growth rates. Netherlands, somewhat disappointing, little decrease in revenues. And Turkey also impacted by the very challenging economic environment in Turkey. If you look at Turkey, it's important to know that a pretty similar amount, what is shown on this slide, again, around about 4 million is earned with shoring. This does not show up in the line revenue in Turkey because this revenue is done with customers in Germany, Netherlands, Switzerland, and so on. If we look at EBITDA, it's a very nice improvement, 58% increase, 27 million. It's in total 9.9 million plus compared to last year. How did we achieve that? Actually, main contributor was the increased revenue. And despite the weaker capacity utilization, we had a very slow start this year. And so far for all three months this year, capacity utilization is below prior year's level. On the other side, personal costs and especially other operating expenses grew disproportionately lower than sales. This was the other contributor to this improvement. And it's also worth to mention the increase of material costs continues, so this was slightly disproportionately higher as we rely more on external partners, third parties, and this is also caused why we have more bigger projects where we are a general contractor. If we look at the key figures, sales came in 30% higher, same gross profit. So this is, as pointed out on the last slide, one of the key drivers of our EBITDA growth, increased sales, same margin, and therefore a very nice contribution to the EBITDA. On the other hand, personal costs and especially other operating expenses, a lower growth rate is also contributed to our EBITDA development and therefore margins improved to 6.8%. This is still below our goals, which is between 11 to 30 percent. However, it's a significant improvement compared to Q1 last year. As always, we look at our main profit drivers. Utilization is lower at SOSE. This is probably a little bit disappointing development. For the whole year, we have budgeted a similar level than what we have seen last year. Over Q1 was below prior year and also our expectation for this year. We see some light at the end of the tunnel now at the end of March. April already looks better. So we are moving in the right direction. daily rates have improved. Last year we have started an initiative to improve our daily rates and some of these improvements which we have negotiated started at the 1st of January. So therefore we see some positive development there. license and maintenance of our indoor product line. Last year, we have seen no license revenue this year as well. So it's not a very surprising development. Quite often, we do the license sales at the end of the year and therefore, especially in Q1, we don't see a significant number there. And if we look at the personal cost per FTE, this is always a mixture. Personal cost per FTE increased by 1%. On the one hand side, we have a higher percentage of senior people. So therefore, the average cost per employee has increased. We have seen the normal increase in salaries, which you always have with your employees also because of inflation. On the other hand, we have hired more people abroad in the countries where we do shoring, where we have a lower salary level, and therefore this has a negative positive impact on salaries because it brings the personal cost per FTE down. If we look at some other figures, We, EVTA, below the EVTA, we have our depreciation. Depreciation of plant and equipment has increased slightly. This is mainly due to an increase in the right of use assets of 1.2 million euro. On the other hand, depreciation of fixed assets has a little bit decreased. Same applies to depreciation related to purchase price allocation as we have not done any M&A activities for the last few quarters. This line, this number is going step by step a little bit down. income from investment activities that's what we show online at equity a little bit more negative and a few one last year and financial results that's the interest we pay slightly higher because we have some more leasing we have also on the loans the what we have dropped our syndicated loans and the amount was slightly higher On the other hand, the interest rates are a little bit lower than what we have seen last year. But overall, there is a little increase. Income taxes a little bit less than what we have seen last year, but still a pretty high tax quarter of 55 percent. Normally you would expect here something between 30 and 35 percent. This is due to the fact that we have certain expenses which are not tax deductible. And on the other hand, we have certain subsidiaries which have brought in a loss and these net operating losses carried forward cannot be put as a deferred tax asset on the balance sheet. Therefore, they go directly through the expense line and have a negative impact on our consolidated earnings. However, it's very nice that we lost time since four years that we are able to show a positive earnings per share figure in the first quarter. And it's also a significant improvement compared to last year's Q1. Let's have a look at cash at net working capital. If we look at the lines, financial debt, net debt, you see an increase of 34.9 million. Net debt is also higher, 30.5 million. Why? Because net working capital increased by 28%. This is compared to the increase in revenues, comparatively high, disproportional increase. If you dig a little bit more in detail into this, you will see that this happened in Q4 last year. So far, we were not able to bring it down again. In Q1 itself, that's what we will see on the next slide, The development was that we kept the level. It has not become worse, but we were on the other side, we were not able to improve it. Investment cash flow, pretty similar compared to last year, which will change this cost mainly by currency fluctuations. And what's also important equity ratio improved slightly to 22%. Here we see the operating cash flow in Q1 itself, and you can see, as always, it's negative. That's what we always see in Q1 and Q2. However, it's only 6% more negative compared to a 30% revenue increase. So that's what I pointed out on the last slide. Q1 itself was okay, but on the other side, we were not able to get our working capital a little bit reduced. CapEx in line compared to last year. These three payments, that's what we show as CapEx due to the interpretation of the IFRS Foundation, which means in this line we show the lease for our offices and also for our company data. Now let's have a look at our guidance. At the beginning of the year, we expected an ongoing demand for IT service, despite the weak macroeconomic environment, especially in Germany. We expected some positive impact, some more dynamic coming from the IE demand from our customers and IE support development processes. We expected to keep the capacity utilization on a similar level than what we have seen in 2025. and continued reduced hiring speed. Actually, if you just look at Q1 and the development since the beginning of the years, you can see that we already reduced it a little bit more because the increase since the 31st of December is only 1.7%, which is comparably low for ADESO. We expect an improved profitability and especially also the benefit from these two additional working days in Q4 this year. However, the start into this year was in most areas a little bit slower than expected. Despite that, we were able to improve our EBITDA and our revenues in the first quarter. If we now compare our achievements this year so far with our guidance, guidance for sales is 1.6 to 1.7 billion. This is an increase of 9 to 16 percent. We have achieved so far 400 million. That's between 23 and 25 percent of that what we need. And if you look at the revenue figure of 400 million, if you just multiply it with four, you're already this 1.6 billion. And if you consider that we will continue to grow that especially the second half of the year, we'll have nine additional working days compared to the first half of the year. It's fair to assume that we will be well within our guidance. EBTA is always a little bit more challenging to predict that and to see it because the guidance is 130 to 150 million. We have so far only achieved 18% to 21% of that. However, this is pretty similar and this range actually is better than what we have seen last year at this time. Please keep in mind that last year, for example, 70% of our EBITDA was generated in the second half of the year. especially because in the second half of the year, we have some more working days. And in addition, we also, for this year, we expect some license revenues. But these license revenues are expected in the second half of the year, similar to what we have seen last year. Yeah, that's all from my side at this stage. And now I will hand over to Martin again.

Thank you, Michael. That was very helpful. So we're heading for the Q&A session. And now, please, we are grateful to take your questions. So the first one will come from Mr. Ziering, from Münchmeyer or Warburg Research.

Yeah, great. Thanks for taking my question. I will have three for the start. The first one on daily rates. You made some comments, but is it also possible for you to quantify this a little bit? We have seen with the full year a decline in fixed price of 2%. Maybe you could just provide some color if these trends have reversed or what you're seeing. Then the second one on utilization, that's also helpful that you mentioned this has improved towards the end of the quarter. Do you already expect a reversal here in Q2 or is this rather a topic for the second half? And then the last one on the tax rates. You mentioned the moving parts and you also mentioned what we should usually see. Probably that's not what we see for the full year. Maybe some sort of guidance, if possible, if this will be remarkably above 40 percent or what you're seeing here. Thank you very much.

Okay. Daily rates, I mean, we are not talking about very significant improvements. We are not talking about 5% or 10%. This sometimes applies to a single customer. But if we talk about improved daily rates, it's very low single-digit growth rate. Let's say it in these words, for us it's our goal to keep this in line with inflation and this is already very, very challenging because the competition is pretty tense at the moment. There are a lot of consulting IT services companies coming, for example, in the automotive sector, which now try to get into the other sectors. If we look at utilization, it has improved at the end of March and we already see other improvements in April. We hope and expect that we will be in line somewhere within Q2. I mean, we are not talking, as pointed out in the past, we are not talking about three, four or five percentage points. Already one percentage point less capacity utilization is already pretty significant in terms of profit because it's pure profit. Tax rate, that's something which is pretty difficult to predict. Last year, for the whole year, the tax rate was also slightly above 50%. I think if you need a tax rate for your calculations, for your thoughts, I would say we should expect it somewhere between 45 and 50 percent. It will still be higher than it should be, because we have some subsidiaries which generate losses, and we cannot put these losses as deferred tax assets on BSC because, as you might know,

um deferred losses can follow so you can only put those losses on the energy grain expect to use them within five years great thanks a lot that's helpful

Just a short reminder, people on the phone, participants on the phone may want to unmute their microphones via the star key followed by the number 6 of their phones for our Q&A session.

Do we have more questions? Hello? Yes?

Hello, this is Wolfgang from Barenberg. I have two additional ones, if possible. First one is on working capital that, let's say, increased disproportionately against sales. You mentioned you were not able to drive it down in the first quarter, but If I remember the Q4 call right, you, let's say, started some measures already, or you're working on measures. So what can we expect over the next quarter? What are your targets to drive accounts receivables and other items burdening working capital down? That would be interesting.

Actually, we have analyzed this and also defined a goal ourselves. In Q4, the increase of working capital was 20 million higher than what it should be. We are talking about 20 million. And that's what we want to, that's the amount which we have set internally as a target and to get it reduced. We have, if you look at the key drivers, it's first of all, all these, what we call contract assets. It's not the line receivables because in general, we don't have problems with receivables, customer pay within the payment terms. What we have seen actually in Q4, this has a little bit reversed already in Q1, that customers wait a little bit longer within the agreed range. The main driver actually are contract assets, which means fixed price projects and other work we have done, but which can be for several reasons not be invoiced yet. And that's something where we also need to work a little bit on our processes to turn these assets much faster into billable revenue. It's always a development during the year that Q1, Q2, and also Q3, this line of the balance sheet increases. But last year, that was different to prior years. We were able to reduce it in Q4, but not as much as it should have been reduced. And that's where we are working on.

Okay, thanks a lot. And then maybe on the pipeline, on your hard order book, you mentioned that activities picked up from something in the public sector, but has your hard order book also increased during the quarter?

If we look at one entry for the first four months, so until the end of April, it's the end of April of this year, and actually that's exactly what is needed to achieve . . . . . . . . . .

Okay, thanks a lot.

So are there any other questions?

Anyone? No, this doesn't seem to be the case.

Ah, there's one. Mr. Zewing again.

I would just take a follow up if you allow. On the public sector, you mentioned the drivers and we know that the Sondervermögen is a little bit slow to turn into actual revenues. I know it's very tough, but do you have any idea about the timeline? Is this rather an H2 topic or do you think this could go into rather 2027? Any color would be helpful here.

I mean, Q1 was the first quarter where we have seen it in terms of order entry. So we have seen some more tenders. We won also more, we got more orders. So we have, in terms of order entry, public sector was already fine in Q1. However, revenues in Q1, the revenues are still based on the order entry from the past, which means Q3, Q4, and that was pretty disappointing. So, yes, we see some impact from these additional budgets, Sondervermögen for the armed forces and infrastructure. It's probably less than what we one year ago would have expected, but there is some impact. And as far as what I heard also from peers, it's not only at Adesso, it's in general, it seems to move now. And that's, I think, good news.

Okay, great. Thank you. Thank you. Do we have more questions?

So then it's my turn to thank you all for your participation and your interest in this call. And I hope to see you soon in person, maybe tomorrow on the German Spring Conference. For now, I have to say goodbye and see you soon.