EQS-News: adesso increases revenue by 26 % to EUR 1.14 billion / Sharp increase in personnel, fixed-price projects and lower licence income weigh down EBITDA in 2023 / Operating earnings set to rise again

adesso increases revenue by 26 % to EUR 1.14 billion / Sharp increase in personnel, fixed-price projects and lower licence income weigh down EBITDA in 2023 / Operating earnings set to rise again in 2024

In its consolidated financial statements, adesso SE has confirmed the preliminary figures for 2023 that were published by the end of February. The adesso Group saw another sharp increase in group sales in 2023, with the figure up by 26 % (of which 24 percentage points is organic) year on year to EUR 1,135.9 million (previous year: EUR 900.3 million), breaking the EUR 1 billion barrier for the first time. With strong demand for adesso’s IT services continuing unabated across all industries, expansive hiring in the first half of the year in particular led to delays in capacity utilisation, which even the sharp improvement in the second half of the year was unable to outweigh over the entire year. Slower hiring in the second half of the year brought a significant improvement in the EBITDA margin, which rose to 9.3 % from just 4.6 % in the first half of 2023. While the number of employees, converted to full-time equivalents, rose by 18 % to 9,512 at year’s end, the growth averaged over the entire year stood at 28 %, above the growth of sales. Personnel costs also rose by 32 % on the back of inflation to stand at EUR 773.2 million, and both factors, along with the weaker-than-expected licence revenue compared to the strong previous year and additional costs associated with two fixed-price projects, led to an EBITDA of EUR 80.0 million (previous year: EUR 92.9 million). In spite of the tough overall economic situation, the Executive Board takes a positive view of the prospects for further growth in the IT industry, especially for the adesso Group, as demand for digital solutions remains robust. 2024 is expected to bring further growth and, as profitability improves, an increase in the result, which would take sales to more than EUR 1.25 billion and EBITDA to between EUR 110 million and EUR 130 million. On this basis, the Executive Board is continuing the distribution policy of recent years unchanged and has proposed to increase the dividend to EUR 0.70 (previous year: EUR 0.65) per share for the financial year 2023.

While German economic output contracted slightly overall in 2023, the sectors of IT services and software, which are critical to adesso, continue to show strong growth, albeit at a slower pace than in the previous year. adesso also benefits from ongoing robust demand for its own digital transformation solutions across all core industries. Supported by strong workforce growth, revenue increased by 26 %, topping EUR 1 billion for the first time, and adesso was able to further consolidate its own market position. EUR 546.3 million of that figure was earned in the first half of 2023, and EUR 589.6 million followed in the second half. The final quarter was once again the strongest of the year, coming in at EUR 302.2 million.

Practically all core industries saw double-digit growth rates, with sales growing between 17 % and 74 %. Only the automotive industry, which is especially sensitive to overall economic developments, saw less dynamic growth in income, logging a 4 % increase from the previous year. Growth was especially strong in two relatively recent additions to the core industries, Retail (+61 %) and Utilities (+74 %). The Public Administration industry (+22 %) saw the highest sales, as in the previous year. Sales with the public sector and with insurers (+21 %) and in the Cross Industries segment (+17 %) are all above EUR 150 million for 2023. The banks/financial services providers and manufacturing sectors generated sales in excess of EUR 100 million.

adesso forged ahead with its internationalisation strategy during this fiscal year, including acquisitions in Italy and India and the opening of a site in the United Kingdom. The strategic expansion of the SmartShore business to include offshore delivery capacity will remain a particular focus in the current financial year as well. Sales to international customers increased by a significant margin in 2023, rising by 20 %. As of the end of the year, adesso employed 1,753 people outside of Germany, a 25 % increase compared to late 2022. Income with customers in Germany increased by an even greater margin, rising 28 %. This puts the figure for income earned in Germany at 82 % (previous year: 81 %).

The IT Services segment once again increased sales markedly on the back of continued healthy demand (28 %). The IT Solutions segment saw its income increase by 7 %. adesso mobile solutions GmbH made the largest contribution to earnings in this segment in 2023. The contribution to earnings by adesso health solutions GmbH and material.one AG was negative as a result of investments in new products. Unlike in previous years, adesso insurance solutions GmbH, the most important company in the IT Solutions segment in terms of sales, was also unable to make a positive contribution to earnings because of insufficient licence placements.

Personnel costs rose at a greater rate than revenue, climbing 32 % to EUR 773.2 million. By far the largest single cost category at adesso, these costs pushed EBITDA down Group-wide by 14 %, to EUR 80.0 million. The EBITDA margin is 7.0 %. Although the previous year had been boosted by positive effects from a series of company acquisitions, profitability was hit by the increased personnel costs, which were partly a result of inflation, and especially by growth-related delays in capacity utilisation, lower licence revenue, and additional expenses arising out of two fixed-price projects. There were also other negative effects on earnings in some quarters. A disproportionately high rate of sick leave had a negative impact on both sales and earnings in the first quarter. Targeted measures were taken to counteract the development in the utilisation rate and inflation-related increase in personnel costs observed at the beginning of the year. Customer price adjustments were initiated, and recruiting efforts were slowed, resulting in improved capacity utilisation starting at the end of the second quarter. In the third quarter, cost overruns occurred in two larger fixed-price projects, which counteracted the positive earnings trend seen in project workload. With the average number of employees rising by 28 %, cost of materials climbed by 21 % to EUR 162.6 million (mainly due to external services) and therefore by a disproportionately low margin compared to sales. This had a fundamentally positive effect on the margin. Gross profit rose slightly more sharply than sales, by 27 % to EUR 773.2 million. In arithmetic terms, gross profit per employee slid slightly from EUR 110 thousand the previous year to EUR 109 thousand this reporting year. Personnel costs per FTE were up only moderately by 3 %.

Depreciation and amortisation increased by 29 % in the reporting period to EUR 57.7 million. The main factor behind this development is the 26 % increase in amortisation of right-of-use assets from leases. At EUR 9.5 million (previous year: EUR 7.3 million), amortisation of intangible assets recognised in connection with company acquisitions was also up significantly on the previous year at 29 %. At EUR -10.1 million, income from financing and investment activities was therefore significantly lower than the previous year’s level (previous year: EUR -6.1 million). The main factors behind this development include interest expense of EUR 3.2 million (previous year: EUR 2.3 million) connected to the presentation and disclosure of leasing relationships, and above all financing costs of borrowed capital recognised in the financial year. The general interest rate trend led to a corresponding increase in borrowed capital.

The effective tax rate came in at 72 % (previous year: 32 %). The increase in the tax rate is due to non-tax-deductible expenses, and to the fact that deferred tax assets were not recognised for all tax losses that could be carried forward in this financial year. Both factors have a greater impact on the effective tax rate when the pre-tax profit is lower. All in all, consolidated earnings were positive in the amount of EUR 3.4 million, down from EUR 28.8 million in the previous year. Earnings per share amounted to EUR 0.49 compared to EUR 4.40 in 2022.

Working capital amounted to EUR 176.5 million as at the reporting date (previous year: EUR 166.1 million). As a result, the need for advance financing of business operations rose by 6 % year on year and therefore at a significantly lower rate than sales. In addition to general efforts to reduce the need for advanced financing, this positive trend is partly due to improved receivables management in the context of the launch of the new ERP system. Net liquidity after deducting the financial liabilities was EUR -48.4 million, compared with EUR -15.6 million in the previous year. In the final quarter, net debt improved sharply compared to the first nine months of 2023 (EUR -135.2 million). The trend in free cash flow was also positive, at EUR 14.2 million (previous year: EUR -9.7 million; FCF2 as defined by the IFRS Foundation: CFO - Capex - Lease Repayments). Equity dropped from EUR 215.2 million to EUR 207.8 million, mainly as a result of the dividend payment and the recognition of liabilities from call/put options in connection with various company acquisitions. The equity ratio decreased from 33 % in the previous year to 26 %.

In spite of the tough overall economic situation, adesso expects to see rising demand for digitalisation initiatives throughout all sectors in 2024 and the years ahead. Revenue is expected to increase by a double-digit rate. The IT Services segment will be primarily responsible for this growth. By contrast, investments in the ongoing development of the product landscape are having a negative impact on earnings potential in the IT Solutions segment. This is more than compensated for by the positive outlook in IT service business. Accordingly, sales is expected to rise sharply to more than EUR 1.25 billion and EBITDA to between EUR 110 million and EUR 130 million with increased profitability.

The full annual report, as well as a table comparing key performance indicators over a period of several years, is available at www.adesso-group.de/en/ in the Investor Relations section.

adesso Group

With more than 9,500 employees and annual sales of more than EUR 1.1 billion in 2023, adesso Group is one of the largest German IT service providers with outstanding growth opportunities. At its own locations in Germany, other locations in Europe and the first locations in Asia, as well as at numerous local customers adesso offers consulting and software development services for optimising core business processes. adesso also offers ready-to-use software products for standard applications. The development of an own, industry-specific product portfolio opens up additional growth and earnings opportunities and is another key element of the adesso strategy. In 2023 and 2020, adesso was awarded the title of the best employer of its size in Germany across all industries. After having already achieved first place among IT employers in 2016, 2018 and 2020, adesso was ranked first again in 2023.

Contact:

Martin Möllmann

Head of Investor Relations

Tel.: +49 231 7000-7000

E-Mail: [email protected]