Nagarro Se

After the presentation, you will have the opportunity to ask any questions, which you can do so either by raising your hand on Zoom or typing any questions into the Zoom Q&A box at the bottom of your Zoom screen. Participants who have joined on the telephone lines can also register their questions by pressing Start, followed by 1 on their telephone keypad. I would now like to turn the call over to our host, Michael Knapp. Please go ahead, Michael.

Great. Thanks, Emily, and good afternoon to everyone. Welcome to Nagaro SE's Retail Investors Call. following today's earnings release for the first half of 2025. My name is Michael Knapp, and I'm part of the investor relations team at Nagaro, and I'm delighted to moderate today's call. You should have received a copy of the earnings release for Nagaro's second quarter 2025 results. If you have not received the release, you can confirm, you can find a copy along with today's presentation on the investor relations section of the Nagaro website. Manas Heumann, our co-founder and custodian of entrepreneurship, and I will be representing Nagaro on today's call. Before I pass you over to Manas, I'd like to remind you that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release. Additionally, please also refer to the earnings release for the notice on reported results that are non-IFRS measures. As in our previous retail call, We will have a short presentation at the beginning and then move to the Q&A session where you can ask your questions. We kindly ask that you stick to two questions. However, you may reenter the queue. And if there's time, we'll come back to you to follow up with any other unanswered calls. And with that, it's my pleasure to hand you over to Manas.

Thanks Michael and everyone thanks for joining the call and welcome. So today we're gonna talk a bit about Q2 and about H1 2025. In general, we are making good progress in what is a relatively slow demand for IT services In terms of operational efficiency, we are actually performing better than it seems. It's been currency fluctuations and impacts on the revaluations of internal loans and bank deposits that are masking some of the structural improvements that we have given. We'll talk more about that in a bit. We're also going to talk a bit about the way forward for Nagaro. We're seeing a slight pickup in activity in topics like data and cloud and AI. And we also see some new investments. But I think in general, our approach is We just don't want to write this growth of our subsector. We want to, in fact, layer on new opportunities to accelerate this return to double-digit growth. And to achieve this, we have talked earlier about some strategic initiatives and partnerships that are gaining momentum. I'll share updates on that shortly. And we're also strengthening our governance, corporate governance, trying to be really good at everything we do. And I will talk a little bit more about that as well. And then, of course, you will take questions. Next slide, please. So let's dive in. We continue to push forward despite the global situations with moderate growth, but strong operational performance. As I said, some of what we have done operationally has been obscured by foreign exchange movements. And primarily, you know, the pronounced weakening of the dollar against the euro has led to a revaluation of our loans and our deposits. And it's creating these non-cash accounting losses, which is impacting our bottom line and making it look that the company is not doing so well, even when the underlying business has actually improved over the year ago period. Meanwhile, we continue to have clients that are sticking with us. Clients with over a million euro is now 188. And these are companies for whom we are all strategic. We want to keep continue to do more and more with them. We're also encouraged very much, and this is quite important, I think that to see that now more clients are comfortable with and have a clearer understanding of the benefits that they can achieve with AI. And this is leading to a ramp up of our internal design activity, our internal reinvention of Nagaro activity, which we believe will start to contribute to our business later this year and in the years to come. Now, coming to quarter two results, we had revenue of 252 million euro and an adjusted EBITDA of 30.5 million euro with an adjusted EBITDA margin of 12.1%. A gross margin reached up from 30.0% a year ago to 33.2% as we benefited from our productivity gains under the margin support program launched about a year, year and a half ago. The company displayed excellent operational efficiency in this first half year, and without the currency effect, it delivered adjusted EBITDA margins at the high end of our range. However, because of these devaluation losses we talked about, we had an impact of 18.0 million euro just from these devaluations, which is a huge number on adjusted EBITDA. And we are exploring ways to mitigate these impacts in the future, although this currency movement is really massive and doesn't happen every day. Based on what we have delivered to date, as well as the current demand trends and the expected trajectory of the costs, we are fine tuning our guidance for the full year. In January, we had projected our revenue for 2025 to be between 1020 and 1080 million. Based on the then prevalent exchange rates, we now expect revenue to come in near the lower end of that guidance. We had targeted a gross margin in the region of 30%. We expect to maintain that. we had targeted adjusted EBITDA margin between 14.5 and 15.5%. And while the operating aspects wise, we are right on target and actually doing well against the target because of the currency devaluations, we expect, currently expect based on the current currency rates, adjusted EBITDA margin to be between 13.5 and 14.5%. So These, by the way, these revaluations are kind of one time. So if currency remains flat, then they will not recur in the subsequent quarters. Coming back to Q2, our best performing industry cluster is management consulting and business information while telecom, media and entertainment is under pressure. Central Europe grew 9%. Lots of SAP work also in there. North America declined slightly partly due to currency. Our NPS for the quarter was 66. And as I said, we have 188 clients, which are an important part of our footprint. We have very little churn in the set. We have a few new members this year. We continue to drive this. We expect to keep delighting these customers and doing more business with each one of them as we help them win in their markets. We remain diversified across industries, across clients, which enables us to deliver solid performance at good times, but also to deliver de-risked performance at difficult times. But it's also an offensive strategy because part of what we are bringing to our clients is the ability to create ecosystems for them, ecosystems that may cut across industries or cut across industries. traditional ways of thinking and allow our partners and clients to explore whole new business models. So for example, I will just talk about an example that's just from a couple of weeks ago. Nagaro has supported this launch of a fully autonomous S-market grocery store concept by SAP and a well-known contract food service provider. In less than three months, the team tells me two and a half months, Nagaru helped pull together half a dozen shopping hardware solutions, various SAP and other software products, including our own Navi platform for electronic shelf label integration in a retail setting and to sort of build this whole new ecosystem concept. And this is where Nagarjo really shines. There are many more such examples. Our ability to execute complex ecosystem projects with speed and innovation around the world, whether in Waldorf or in Bengaluru, is what makes Nagarjo really special. Anyway, coming back to the numbers, we have seen significant growth year over year in automotive, manufacturing, and industrial. and in management consulting and business information, we see a large opportunity in the digitization and new intelligence in manufacturing and supply chains around the world, and especially in Europe. If you see the latest Der Spiegel article about how AI might actually do special things in Europe, Because AI in the US is more geared towards consumer. AI in Germany, for example, may be much more geared towards manufacturing. So I think that also holds true for Japan, by the way. And I think you see that also in our own partnerships with Siemens and SAP and Advantech and others, that we are sort of also steering a little bit in this direction. We continue to see declines in our horizontal tech. industry, which we have purposefully moved away from in the last 10 years. The customer diversification still remains. Our top five clients represent only 15% of total revenue in Q2. Similarly, regional diversity of revenue has been critical for us and for stability and growth. And we also find in environments that are problematic economically, where you have heightened policy uncertainty, and trade tensions, it really helps to have this diversification. We continue to see, for example, excellent traction in the Middle East, winning some new prestigious logos across public and private sectors. And that's kind of what we also want to do with other regions, you know, as maybe some regions are slower, we are able to move faster in some other regions. In our last earnings call, I had said that we are determined to get growth back into double digits soon, regardless of how our industry subsector performs. We are now totally focused on that. We have, as I mentioned in the last call, some initiatives to layer on these lines of growth over the normal subsector growth. And I can give you an update on some of these. The first of these is Japan. In the last months, we have continued to develop our partnerships targeting Japan. and targeting Japanese companies throughout the world. We are working with multiple partners and have several dozen distinct business opportunities, small ones, bigger ones. The groundwork is going very well. It's also reflecting in revenue increases that are fast, but from a tiny base, so it'll take some time to get some impact. We want to do in Japan what we did in the Middle East, land and expand via organic and small, inorganic moves potentially. As I said in the last call, Japan is one of the world's largest economies, largest IT markets. The economy is changing of late. The mindset of the large Japanese companies is advancing. Warren Buffett is investing. There is a digital debt coming due and the country really wants to leverage AI. All of this leads to a very exciting market. The second area was the German Mittelstand. I had mentioned that we work a lot with SAP in the German Mittelstand, but not so much in digital. That is starting to change and that is also moving along fairly well. The third is Edge AI and IoT rooted primarily, but not only in the partnership with Advantech that we had announced. Here again, we have a couple of dozen joint leads and we are excited about what this partnership will mean for us next year onwards. What's not on the slide yet, but which is very important is data engineering and AI. As I said earlier, we're very encouraged to see that our clients now have a clearer view of the benefits that they can achieve through AI and a better idea of how they can de-risk the challenges that AI poses. As an engineering forward firm that is just not too big, not too small, I feel that we have an excellent chance at success in this new phase of transformation at our clients. We are big enough to have a seat at the table and small enough and engineering focused enough to be able to give the confidence that we can drive this forward in a humanistic pilot and expand in a sensible, cost-efficient way. We are redesigning our offerings. Therefore we are redesigning our positioning. We are redesigning how we work internally for this next phase so that we can contribute. We can have this new era. We can launch this new era for the company and have this data engineering and AI contribute much more meaningfully to our revenue in the rest of the year and in the years to come. We will talk more about this in our coming earnings calls, I'm sure. Michael, with this, could you please hop in and say some words about the balance sheet and cash flows?