Thank you very much, Rebecca. Good afternoon, everyone. We really appreciate your presence here today. Let me introduce our speakers, Massimo Mauri, our CEO, and Lorenzo Mazzini, our CFO. After an initial section focusing on the results of the first six months of 2023, a strategy update will follow. I will now leave the floor directly to Max. Please, go ahead.
Thank you. Thank you, Lorenzo. Thank you very much, and welcome to everybody. Let's jump into our section. So, here we are. So as you may noted, we grew in the first half of the year, around EUR 112,000,000 revenue, close to 20% organically, versus the previous year of the year. It was a very good results in my mind, especially obtained in the scenario where we are living. In fact, if you should consider, we are overperforming a lot our competition. Just if you look to Advantech, they posted a double-digit decrease in revenue during the second quarter of the year.
So this is due to the fact that we are very well positioned in terms of strategic positioning, and also because we are growing, thanks to a lot of new customers, and the increasing of the share of wallet into the existing customer base. The contribution of Clea was really good, around 10% of the sales. Again, this number is better than it was my expectation in the contribution of the recurrent revenue, which are now above already the 40% of the total, but are growing progressively, as we discussed many times. And I think, as you will see later, we are growing around many sectors and across all the region, basically.
The situation of the shortage is over. And that drive, together with the portion of recurrent revenue increasing in Clea, a very good gross profit margin. We reached basically 45-49.6% in the first half of the year, improving a lot both versus the first half and the same period of the last year. The adjusted EBITDA in the period was EUR 26,500,000 , equal to 23.7% of the sales. It grew in the range of 32% versus the same period of 2022. And the adjusted net income jumped at EUR 12,600,000 , basically increasing by 46% versus the previous same period last year.
So basically, what we did during the second quarter was to reach over 51% of gross profit margin. This is due to the fact that, as I told you many times, when the shortage will be over, the margin in terms of gross profits, profit margin, as well as the EBITDA, will recover, and we are finally here. This kind of effort will be consistent also for the entire year, I would assume. So, as I said, despite the difficult period where we are living, basically, many customers are destocking and moving the orders from a quarter to another.
Despite all this sort of scenario we are facing, a substantial and very good organic growth trend also for the last part or the second part of this year. So we are quite satisfied about the situation. Well, looking into more details, as I said, gross profit margin increased a lot. You will see later how nice was the performance into the second quarter. And also the EBITDA gained to EUR 26,500,000 , thanks to an EBITDA well above 25% in the second quarter of the year.
Also, the increase of the net income was good, and was really due to a better EBITDA, of course, but also due to the fact that we had a lower financial cost, and so lower financial expenses over the period. So I... Now I hand over to Lorenzo, and we will be back later on.... So please, Lorenzo, go ahead.
Thank you. Thank you.
Hey, Lorenzo, you are on mute.
Okay. Sorry, now you can hear me, yeah? I suppose, yes.
Yeah.
Good afternoon to everybody, and in this slide, we would like to have a focus on our results, in particular in Q2 2023, respect to Q2 2022, with the focus actually on profitability. As you can see, we achieved the respect to the same quarter of 2022, a really important performance in term of gross margin. In absolute term, we increased the gross margin by EUR 5,600,000 , but more important than this, we recorded a gross margin in percentage of sales that are 500 basis points higher. This, as Max said, due to the fact that the component shortage scenario is normalizing, and we are able to record a really important performance in terms of purchasing in the cost of the material.
More important actually on this, you can see that, when we are able to bring the GM above 50%, we have an adjusted EBITDA margin that goes above 25%. And please consider that the 25% of EBITDA margin is a target that we have in a couple of year from now. So we consider really that the second quarter of 2023 has been a really significant and a really positive quarter for us, in this, in this market scenario. Going to this slide, we would like to show you a little bit additional details regarding our sales breakdown by geographic area and by end market.
Here, the message that I would like to pass to you is the fact that on both the side, we have a really good diversification among geographic area, but not only in terms of percentage to sales, but also in terms to growth. Actually, as you can see on the geographical area, that the most important geographic area is growing double digit, and almost the same trend is on the most important vertical. So in this market context, actually featured by increasing interest rates and lower investments, however, we have no big correlation to just a geographic area or just to an end market. And this give us an important visibility that our growth can continue at the same pace. Just a last comment regarding our Clea business, so our software business.
We reached an important percentage for us, that is 10% of net sales. But what is important, as Max said before, we are having a shift of the part of at recurring revenue respect to the NRE part. So, actually, recurrent revenue is increasing. That is the part that he will be constant also for the future. Okay, going to the slide of Adjusted EBITDA, you can see here that we reported the bridge respect to the Adjusted EBITDA of the first half of 2022. EBITDA actually increased mainly for obviously the growth in term of sales, but more importantly, by the growth in terms of gross margin in absolute and also in relative terms. What is really important here is that, as you can see, our EBITDA margin...
Sorry, our EBITDA in absolute term is growing at more than proportional speed respect to our growth of sales, and this due to our profitability at the top line level, I mean at gross margin level, but also to a good effect in terms of operating leverage. Just a comments regarding the fact that we reported the unadjusted EBITDA, and to explain to you what are the adjustment that we do. As usual, we adjust the actuarial value of our three-year stock option plan that amounts to EUR 700,000, as you can see on the chart below. In addition than this, we have extraordinary transaction cost of EUR 700,000, that part is related to the capital increase that we did together with the entrance in the capital of 7 Industries.
Another part is a one-off retention bonus that we have of the people, of the employees that we have on SECO USA, relating to the sale and purchase agreement that we signed four years ago when we bought the company. Moving to the slide in which we analyze the trend of our adjusted net financial position, we can see that we improve a lot these indicators in the first half of the year. This mainly due to, obviously, the capital increase that was underwritten by 7 Industries. The net capital increase was of EUR 65,000,000 plus, sorry, minus a couple of million of transaction costs. So the net cash that entered in our bank account was about EUR 63,000,000 . What is really important for us is what happened to our leverage ratio.
You can see that at the end of 2022, we have a leverage ratio of 2.7, net financial position with respect to EBITDA. Today, considering the last 12 months, at the end of June, is 1.2. So we more than double the decrease of the, our leverage ratio. This is really, really important in the actual financial cost and with high interest rate. And this, give us a lot of flexibility in terms of operating activity, of investment, but also it give us, the opportunity to reduce the impact of financial cost on our PNL. Thank you very much to all the audience, and I give the speech back to Max.
Thank you, Lorenzo. Start with the section about the strategy, and I'm glad to announce that we will launch the new SECO brand together with the new website and the new strategy of the company on September 27. We focus the strategy around basically three pillars, which are the edge computing part and the IoT part, Clea, and the AI part, with a new product that we will launch soon, which is StudioX. Altogether, this is going into the direction where we are leading into a big revolution, industrial revolution, driven by technology, driven by AI. We think that AI is gonna change in the next 5-10 years all the process inside the industrial customer.
We think we can bring a lot of value on the customer table, thanks to our unique end-to-end solution, because SECO is really capable to supply basically a digitalized device, plus a complete software platform and a complete IoT solution, and an AI solution to really bring value on the customer table. What is important in this strategy is, at the center of the strategy, there is also the ESG component, in the sense that ESG is really one of the key that will enable to unlock to our customer.
The reason why is because when you are able to connect your devices and to make AI running into it, you will see a lot of benefits in terms of data that you can really use to reduce the impact of those devices into the field and basically augmenting a lot your ESG components. So we did a partnership with Axelera. Axelera, starting from the middle of 2024, we will launch a complete product line hardware-wise, based on this AI accelerator. It will open a new revenue stream for SECO, that will go exactly as an add-on to all the customers that are using our hardware, to be ready to run algorithms on the edge. This is...
will be significant and important for a lot of application where you need real time, and will be also very important in terms of cost reduction, customer-wise. So, the data analytics, the improvement into the user experience are basically the two key of the AI. And you can see here are some use cases where in any kind of field into the industrial domain, you will see a lot of value-added application of this technology that will be really disruptive in the next five years. And well, you can see, you can really make things happening at a lower cost, with a lower pollution impact, with a more clean process, low cost, higher value added for the customer.
So you can really bring the future with... thanks to this technology in your company, if you are a client. So I think this is a snapshot of many different kind of application in a different industrial domain. Basically, as I said, our end-to-end solution will be able to cover all the needs of the customers, providing a lot of benefits to them. I think, here is where SECO is unique, here is where we are really well-positioned, strategically speaking, and technology speaking, to really continue to beat the competition, to beat our market, and to emerge like a market leader in the next four coming years. So that's pretty much all from my side.
I think we can now start with the Q&A section.
Thank you to the speakers today. We now have an opportunity for questions. As a reminder, if you would like to ask a question, please use the Raise Hand function on your screen, or for those dialing in, it's star nine on your keypad. Once your name is announced, please unmute your line, state your company name before asking your question. Thank you. The first question today comes from Mr. Marco Vitale. Please, Marco, the floor to you.
Thank you. Good, good afternoon, everybody. It's Marco Vitale from Mediobanca. We start with 3 questions from my side. The first one is, if you could provide us some additional colors on what have been the drivers of the organic growth slowdown that we have witnessed in the second quarter of the year, and also, how do you see this trend to evolve across the coming quarters? This is just a temporary quarter, or you see some, let's say, more generalized slowdown in underlying demand. On the back of this, what are the expectation, initial, we would say, feeling on the business pipeline going forward in 2024? If you could provide us what are your early feelings on that. The second question is on the profitability trend.
We have noted a remarkable improvement in the EBITDA margin, also gross profit margins. I was wondering if these trends could be taken as sustainable across the coming quarters of the year. And then the third question is just a couple of curiosity on the new strategy that you are unveiling today. I was wondering the new product line that you're launching with Axelera, should we take this as a an upselling opportunity for what concerns the hardware offering? And then on the same note a question on the AI: What is supposed to be the marketing strategy for this new solution?
If should be considered as just an add-on for your existing customers or just integrated into the Clea platform? Thank you.
Oh, a lot of questions. So let's start, Marco, from the first one. Well, come on, guys, I think we should talk about growth and not slowdown, just because we grew 42%-43% all organic last year, and we grew 20% in the first half of the year in a very- in a very difficult market scenario. So for me, I can comment the driver of our growth and our future growth. As I said, we are inside a time where the high interest rates are driving customer to basically decrease the level of inventories, and basically, that's happened already in Q2. You will see it also in Q3.
But we can already say that it will be over, because in Q4 is very strong. We are expecting to beat the record, the all-time record in revenue for the company, during the 2023 Q4. So more or less, our expectation about the 2023, as you said. As you know, I refuse to provide a guidance this year, because this year is, it's a very difficult year. But we think to be able to maintain a very robust organic growth, thanks to the order that we have, thanks to all the projects that we have already in the book. And I think more important, the profitability is sustainable.
The increase that you observed during the Q2 is basically the results of the end of the shortage, meaning that it will be consistent over the next couple of quarters at least. And it will drive basically SECO nearby the EBITDA targets or the market consensus that we have right now. So that's for sure. And in terms of business, well, we did a very important achievements during the last quarter.
I can summarize some of them, like we signed in Germany and a very important contracts with all the tobacco producer, basically the association, where we are supplying the payment system for all the machine that are out of the shop on the tobacco in the entire Germany. We secured this business now up to 2028. So that was a really important achievement. We also did an important agreement with Technogym, under which we are co-developing the hardware of the new generation of the technology machine. We will start to ship the first batch of product during the first quarter of the next year.
As well, we gained a lot of new customers around the world, water pumping area, industrial area, EV charger station area. So we still have a very robust pipeline and under negotiation, which is already weighted by success. I think it's well above EUR 500,000,000 for the next couple of years. So, and this is on top our existing customer base. This is also the reason why we are investing a lot into ourself. The level of CapEx is high, but will still high also next year, because we now completed the new production and the new big building, sorry, that we built it in China.
We added a couple of production line in our German facilities. So we are investing a lot into SAP, into many software tool, because as the company is growing, we are preparing also the company for additional future growth. In terms of Axelera, which was the last year point, yes, we will be out with this new generation of boards, basically, in the second half of the next year. Just to simplify to you, these boards will fight against the NVIDIA solution, the NVIDIA hardware solution dedicated to the AI. It will be three times cheaper and a couple of times better in terms of performance.
So we are expecting to reach, to cover all the needs of our customer in one end, and in another end, also to reach, a portion, a small portion of the total market, but the total market, it's so big. If, we will enter as, I am assuming, starting from 2025, we can make, a lot of money in... thanks to this, partnership and this new product line. I think that's, pretty much all. Thank you, Marco.
Thank you.
Thank you, Marco, for your question. Our next question today comes from Mr. Matthis Sarrazin . Please, the floor to you.
Hello. Hi, I am Matthis Sarrazin from Crédit Mutuel in Paris. First on Clea, can you explain the reason for the high volatility between quarters? Should, do you think we should more, like, look at it at the semester scale? And then can you also explain a bit, or elaborate a bit on the recurring part of the EUR 4,400,000 you had during Q2? Approximately what percentage of the revenue could be considered as recurring? And then I will have some other questions. You can start by-
All right. Thank you, Mathis. Yes, as I said, we have already basically in the first half, more than 40% of the total of the revenue, Clea revenue as per current, and in the second quarter, in particular, it was more than 50%. What is happening is due to the fact that customers are now reducing, generally speaking, the investments into the new technology, what we are doing to try to mitigate it is to actually enable customers to start with Clea at a lower NRE fee in the beginning, counting on, you know, the recurrent revenue later. So it's...
This is the effect of basically the EUR 4,800,000 instead of 2,600,000 or something, just because we are not reducing the customer, but we are reducing the one-off fee for them. That was the effect. I think this effect will continue over the entire year. Good news is we are closing and we will basically communicate it soon. But we are closing a couple of very important agreement with new, very big customers into the industrial field. And I am expecting to be able to announce one of them, at least, by the end of this month.
So, it is proven that our business is growing in a very right, right direction. Just to complete on Clea, we will launch in January 1st, next year, the Clea web solution, meaning that you can also buy and acquire Clea directly on the website, starting from January 2024. We are adding in Clea, to, thanks to the AI, a bot that will actually help users to use it by themself without any kind of additional sample. So at that point, we will start to spread the Clea across many, many single customers, devices, users. Try to create also a community of people using it.
So what I'm trying to explain to you that yes, we did a lot of things starting from 2021 when we launched it, but we're still in the very beginning of something here. A lot of things will come soon, and will further increase the penetration of the market. The last comment is the product is working extremely well. The customers that are using it are so happy that are becoming in some way also testimonial for others. And that's helping a lot our progression into this business. Thank you, Mathis. I don't know if you-
Thank you
... have more to ask, or if we can go to someone else?
Now, if anyone want to ask question, I have some other, but there are 63, so.
All right.
The next question then comes in the chat from Valerie Lefebvre. She states, "Congrats for these good results. You said that you will have more financial flexibility. Are you going to make acquisitions and have bigger targets?" Her second question is: "What will be your CapEx for this year and next year? Thank you.
Can you repeat the two questions, please?
Yes. The first question from Valerie is, "You said that you will have more financial flexibility. Are you going to make acquisitions and have bigger targets?" Her second question is: "What will be your CapEx for this year and for next year? Thank you.
All right. So I think, yes, we have gained, thanks to 7 Industries and their capital injection, a lot of financial flexibility. We are planning to be below 1x the EBITDA on debt by the end of this year, and I think that is giving us a lot of strategic option. It's not a secret that we are targeting M&A for 2024. We are working now, in this period, to a couple of nice target in the U.S., and we'll see, we'll see. I don't want to say too much, because as you know, M&A is done when it's done, not before.
About the CapEx, CapEx are in the range of EUR 22,000,000- EUR 25 ,000,000, still, in this range, until 2025. Again, this is not a normal range. This is a, a range where we are right now, and will stay for a couple of years, because, we are really, facing, a big, increase, as you, as you may imagine of our business, and we are following it, with a very robust industrial infrastructure and a very robust software, and innovative software tool, to, to keep ourself, at the forefront of the quality, at the forefront of the efficiency, at the forefront of the innovation.
That's so important for a company like SECO, that we are selling innovation to our customers every day, and that's important that ourselves also we're still very well positioned and keep a high level of quality and services for our client.
Thank you for this answer. Our next question comes from Arianna Terrazzi. Please, Arianna, go ahead.
Yes, good afternoon. Thanks for the presentation. I have a follow-up on the AI business. We understand that your new solution could be attractive versus the alternatives present in the market, and you could, of course, leverage on your existing customer base. Do you have any targets for the medium term? Thank you.
Surely, to provide a target is surely, we will give it at the right time. But, AI, as I said, is the biggest opportunity that is coming on our market, and we already invested a lot in this domain. You can imagine we have over 200 algorithms tailor-made for a lot of industrials and verticals application that the customers can really bring in use. And we have a lot of competence, so we can really tailor-made a solution for our customer.
Moreover, with Studio X, we will offer a platform based on generative AI to customers, to actually automatize a lot of their internal process, creating for them a lot of benefits. All these kind of services, algorithms that I'm mentioning are on a SaaS business model, so very high margin and recurrent revenue. Again, we will launch it end of September, early October, as soon as we will be ready. And at that point, I well expected to have a business already as a small contribution, but already in the last quarter of this year, and it will be significant starting from the first quarter of the next year.
Thank you. Our next question comes from Mr. Mathis Sarazin. Please go ahead.
Yeah, thank you. Regarding what you said about the debt leverage, that you are waiting for the end of the year below 1x EBITDA, can you just help us to understand how you will reach this level? Because you also explained that the CapEx for the entire year should be between EUR 22,000,000 and EUR 25,000,000 . Actually, the level of H1 was around EUR 9,000,000 , so the CapEx should increase in H2. Are you waiting for any, I don't know, working capital positive effect or any other positive effect that could help you to decrease the net debt? Thank you.
Yes. The inventories level is decreasing progressively, and we will see a decrease, and we will recover a bit on the payment terms, because this is something that we are giving to top-quality customers as a benefits for a couple of quarter, but we'll be back to normality by the end of the year. So since we are in the range of EUR 60,000,000 at the end of the first half, we think we should be able to gain basically EUR 3,000,000 , around EUR 3,000,000 , by the end of the year, at least. And so the EBITDA should be in that range, so we will be slightly below 1 or around 1.
Okay, thank you.
Currently, we do not have any questions queued, so we will wait just a few moments to give everyone the opportunity. If there are no further questions, I will now hand back to the speakers for any final comments before bringing this presentation to a close. Please go ahead.
We should have another question by Mathis. Is that correct?
Oh, sorry, I'm good.
All right. So, for me, just to complete our discussion, I noted that the company now is basically trading at a very low multiples on the market. Basically, around 11x EBITDA expected by 2023, and around 8.8x EBITDA expected in 2024. Well, there is already a big gap with versus a negative, unfortunately, gap versus competition.
That's strange in my mind, because actually we are beating our competition above, around all the key KPI of the business, in any kind of KPI, basically growth trend, CAGR, EBITDA, CAGR, whatever you want to use to measure the business performance. So that's basically my comment. We are continuing to put a lot of effort in our day-by-day business because we strongly believe in what we are doing. The result that we achieved, we are very, very exciting about these results, and I hope also the market and the financial community, sooner or later, will really appreciate the company performance. There is another question by Youssef. That's correct?
Yes. Hi. I'm Youssef, I'm from UniCredit. Could you elaborate a little bit more on the three pillars?
On?
The three pillars: Edge, IoT, and AI, that you mentioned in the beginning.
Yes. Well, can you explain-
Can you elaborate a little bit more on them? What are exactly these three pillars, and how significant each part will be?
All right. I think, returning back to this slide, we are doing basically around, nowadays, 90% of our revenue are based on the edge computing. What we mean for edge computing, in 72% of the total is basically, as an industrial PC with a touch display, with electronics inside, with the mechanical enclosure. We are providing this as such a product to customers. And in the near future, this is our strategy basically, to add to those devices, the platform, the, the software, the Clea software, that enable customers to really use the data that they are generating with those devices on the field. And really, being able to elaborate those data to generate less...
Reducing costing to the maintenance of the devices. Think about predictive maintenance, for example, or making that analysis. Customers can really increment their revenue per device per machine they are making, thanks to the analysis that they can do into Clea. Moreover, thanks to the AI application, the AI solution that we can provide into StudioX that will run into Clea, we will have a lot of value-added services already available on the machine for the customers. Think about fingerprint face recognition. Think about the fact that the machine can be repaired by itself thanks to the AI.
The AI can really call someone into the company and say: "Look, this machine need to receive something, because it need something to be changed there." So a lot of things that you can really have as a better user experience in one end, and reducing the operative cost, and also the impact in terms of ESG, that those machine are producing on the field. So that's the kind of value added that SECO is bringing to the customer table. It's. And I can tell you, it will become more, more, more important in the near future.
Thank you.
Thank you. Currently, we do not have any questions queued, so we will wait just a few moments to give everyone the opportunity. If you do have any follow-up questions, please do reach out to the team. I will now hand back to the speakers for any final comments before bringing this presentation to a close. Thank you.
No, I think, we are almost done. I will do a road show, early in September, early in October, sorry, touching, Milan, Frankfurt, London, and, Paris as well. So I hope to see you guys, in person, to discuss, further about SECO and, and our future. Thank you very much for your support, and see you soon. Bye-bye.
This presentation will now come to a close. Thank you.