Afternoon, everyone, and welcome to SECO's half yearly results and business update for 2022. Before I hand over to your host today, please be advised there will be an opportunity to ask questions at the end of the presentation. In order to do so, please use the Raise Hand function on your screen, or for those dialing in, it's star nine on your keypad. I now have pleasure handing over to SECO's Chief Executive Officer, Massimo Mauri. Please go ahead, Massimo.
Thank you. Thank you very much. Hi to all, and thank you for being here. I think the first half of this year was tough because we execute in a very difficult market and environment. Despite it, we show result that proven by fact a solid execution into our business. We've a good organic growth in the range of 60% and in the range of 50% the growth in a like-for-like basis. The EBITDA grew in a very significant way over EUR 20 million. I would underline also a strong acceleration of the revenue in the second quarter of the year and the EBITDA as a consequence. We still invest in our business.
In fact, we invest around EUR 10 million in additional stock to support our future growth. This is due to the component shortage situation. Despite it, we started generating cash. We generated over EUR 3 million as a free cash flow in the second quarter of 2022 due to the condition where we operated. I think that is a significant achievement. The gross profit margin is stable in the first half of the year. Again, this is affected by the shortage. Despite it, we were able to improve by 80 basis points quarter by quarter in the second quarter of this year. The Clea business grew better than expected. Also, it is growing and ramping up faster than our internal estimation.
This is great because proven in my mind that the shifting and the evolution of our business model from an hardware company to an hardware software company is working extremely well. We was able to make around EUR 10 million in revenue, over 10% as a total revenue in the first half. We have also significant additional growth in the future coming from new customers that are choosing Clea as IoT infrastructure, IoT-AI infrastructure. The order backlog is up by 70% in same parameter versus one year ago. It's now in the range of EUR 174 million, providing us all the visibility already on the entire year. This is the reason why I am in a position to fully confirm that our guidance.
Also an increasing visibility in 2023, showing that the growth that we have in mind is still there. I was on the phone and meeting with a lot of CEOs of our customers during the last few weeks, and actually they told me the business is growing, continue to grow. They have a strong demand for products and solutions. The digitalization trend continues. All the KPIs that we are noting don't show us any kind of slowdown in our business nowadays, but we will continue to monitor them very carefully on a weekly basis.
Entering more into details in the second quarter of the year, as you can see with a comparison with the same quarter one year ago, well, you can see a big improvement in all the major KPIs. The growth of the sales is impressive in my mind. I think also it is important to outline that we grew in the gross profit margin, despite the fact that the last year was not affected yet from the shortage, so we were able to improve around 80 basis points, the gross profit margin, due to mainly the contribution, the bigger contribution of the software business.
The EBITDA is jumping, returning up to 22% in the second quarter with a good contribution also from the operating leverage. What it means, basically, for us, growing is making something that we did an analysis quarter-by-quarter looking. Here you can see, from 2020 up to now, the quarter-by-quarter revenue. What you can see on the slide is that we was in the range of EUR 29 million, on average, in 2020. We were at EUR 36 million, roughly speaking, on average in 2021.
We are now around EUR 47 million in the first half of 2022, and I would expect to see it further growth in the second half of the year to achieve our target. Bottom line, you can see a 20% quarter-over-quarter sales growth year-over-year. 35% growth in EBITDA, and EUR 3 million+ of cash generation in the last quarter. This is the snapshot of the result. I think it's important also to underline to you that we act in a difficult environment due to the shortage of the components. What it means for our business, it means that we performed three times price increases versus customers in the last one year and a half.
We did over 20 redesigns of high-runner products, which is equal approximately to 30% of our total high-runner products. It means that we redesigned them, changing components, putting a lot of effort into finding components on the supply chain. We weren't able to ship all the backlog. In fact, at the end of the first half, we still have EUR 6 million of overdue backlog, meaning backlog that we should have shipped in the first semester and we weren't able to ship. We invested EUR 10 million in additional inventories and in such an environment, we were able to execute the launch of Clea, which is going extremely well.
We was able to grow the business in a very significant way, and we was able to in some way defend our gross profit margin as a consequence to continue to significantly growth into EBITDA margin. This is a summary of the first half of the year in my mind. I would like to hand over to Lorenzo that can provide a deeper analysis of the major KPI of our first half performance.
Thank you. Thank you, Max, and good afternoon to everybody. Well, financial highlights of SECO Group in the first half of 2022. As Max already mentioned, we recorded a really important growth of sales 125% respect to the same period of 2021. We increased the net sales in absolute terms of EUR 52 million. What is more important for us is the speed of organic growth and like-for-like growth that you can see is really important on both the KPI. This growth is for sure driven by a really solid performance of edge computing, but more important for us, the performance of Clea business that reach close to EUR 10 million in the second half of 2022, showing a great rollout of our solution across our customer.
Another point that I would like to mention regarding sales is for sure the integration that is proceeding really well across all our acquisitions realized in the last semester, so that contributes for sure to reach these important results. In terms of gross margin, obviously the speed of growth has been similar to sales in terms of half-on-half growth. What I would like to point out is the profitability at gross margin level. We are just one percentage point below the first half of 2021, but we are comparing really two different situations. Actually, the first half of 2021 was not affected by shortage. We reached these important results thanks to two tools.
Firstly, Max already said these are price increases that we need to do in order to rebate the increase on components on our customer. But more important is the impact of software that, as you know, has a higher gross margin with, so that counterbalance the profitability that we have on edge. Good performance in terms of gross margin for sure. In terms of EBITDA, we reach a good performance on this KPI. Also this level, actually, we more than double first half of 2022 in respect to the same period of 2021.
What is really important is in relative terms, we are just one percentage point below the level of the H1 2022, but again, in a really different situation, so shortage versus non-shortage period. Most important for us is the acceleration of profitability at EBITDA level in Q2 2022. Actually, we closed the Q2 2022 with 22.5% of gross margin, in respect to 20% in the first quarter of the year. Showing that even in this difficult situation where there is shortage, SECO has been really good in navigating in this complex market scenario. Regarding net income, we grew a lot also at the net income level.
We more or less double the net income in the two periods that we are comparing. The growth is less than proportional with respect to sales because we have EUR 3 million higher in D&A, of which EUR 2 million comes from SECO Northern Europe, previous Garz & Fricke that, as you know, was not included in the consolidation perimeter in the first half of 2021. The other item is for sure financial expenses that accounted for EUR 1.9 million in the first half of 2022, while the figures was close to zero in the first half of 2021 because the company was cash positive before the acquisition of Garz & Fricke. Let's go a little bit more in depth on our sales performance.
Here again, strong performance of edge computing that doubled its results compared to the first half of 2021. Great performance of Clea that grows 10x with respect to the same period of the year before. Great launch of Clea over the market. For what concerns our performance in terms of sales breakdown by geographic area, we can see that we are growing at a really good speed, more or less across all our geographic area, showing that SECO has a quite good diversification of sales across geography. The same comments we can do for sure regarding the end market, so the vertical on which we are distributing our products.
I would like to make a focus on the vending and distribution sector that is growing at a really important speed, recording a strong performance on both, let's say, area, food vending business and tobacco vending business on which we are particularly strong in Germany, thanks to SECO Northern Europe. Well, for what concern our performance in terms of our most important indicators in terms of profitability, so adjusted EBITDA. Again, 21% margin versus 22% of the same period of 2022. Just one percentage point in decrease, but again, in a really different scenarios, shortage period.
Again, what I would like to stress again here is the performance in Q2 of 2022, where we increase EBITDA margin of 2.5 percentage point in unfortunately a market in which the shortage is continuing. For what concern EBITDA, here we showing you adjusted EBITDA, that is for us, the performance that measure actually the results of our business. We adjusted the EBITDA for two factors, the actuarial value of the stock option plan reserved to the managers that counts for EUR 1.5 million of the overall adjustment. Then we have adjust EUR 300,000 of M&A transaction costs related to the Camozzi Digital deal. Well, a comment on our most important indicators in terms of balance sheet, actually KPI, the net financial position.
We close the semester with a net financial position of EUR 122.6 million, an important improvement of EUR 3.2 million with respect to the net financial position of the first quarter of 2022. This is a really great result actually in a context when the shortage is continuing and these results. The driver has been for sure our performance, our P&L performance for EUR 7.5 million, and the good management of net working capital that was decreasing in the second quarter of the year by EUR 1.1 million. Another point that I would like to highlight on this slide is our derivatives on our balance sheet. It is reported on the right of the chart.
As you know, we did a full hedge of our financing agreement that we take in order to finance Garz & Fricke. Due to the trend of the interest rate, and in particular the six months Euribor, these derivatives count now for a really significant and positive amount of EUR 9.6 million. As usual in hedge accounting, this amount is not included in the net financial position and is not included either in our P&L because it's recognized against equity. Thank you very much, and I pass the speech again to Max.
Thank you. Thank you, Lorenzo. I think what's next after the start, first half? Well, I see the trend of growth that we posted continuing. I think also the key driver, which is the digitalization and the digital transformation still there, is a driver that is recession resilient because it's a secular trend that is basically changing almost all the process in the industrial business. As a factor, we still see very big new project that are coming from new customers. In the digital signage, in the industrial field, in manufacturing, recharge station, digital voting machine, consumption monitoring, many others, we still have a big demand of product and solution, and we are getting a lot of traction with a lot of big customers around the world.
That is providing us an increasing in visibility also in 2023. This is proven by the order backlog, as we discussed before, but not only. This is also proven by the design win. The design win and the order backlog are the two key indicator to look which could be the future trend of growth of the company. If you look the backlog, well, the backlog is up 70% versus the previous year at the same parameter. That is driven by a huge growth into all the region, with a special focus into EMEA, APAC and U.S., and is driven by existing customers and a lot of new customers that are starting now entering into mass production. They will be there for at least five years due to the life cycle of their product.
It's very important also to look and make an analysis on the design win. The design win on the edge computing business are well above EUR 80 million as a total value, but are well spread into the three main region where we are acting and across many different kind of verticals. This is also showing a good contribution, which is in the range of 40%-45% of new customers that are coming, starting working with SECO. We're really happy to see customers in a vending machine, in industrial automation, in voting machine, in smart city transportation. A lot of different customer with new solution, and most of them are including Clea. About Clea, where we are?
Well, now we have already over 100,000 licenses under contract, and we will progressively put them working on quarter by quarter increasing. We have over 200,000 licenses close to be contract. I would assume that would be under contract a good portion of them by the end of the next quarter. We have a huge pipeline driven by over 50 new customers and over 500,000 devices in negotiation. Of these new customers, I would like to mention a couple of them. One is a very, very big and international customer that is choosing Clea as a IoT AI system for their solution.
They have a lot of solutions in the world of, you know, consumption of water, vending machines, all this sort of product. Another big customer is a U.S.-based customer. Another big customer, which is a German customer, visited us last week. They are a leader in the industrial automation area, and they will start soon to work with SECO on a big Clea project. We are very proud to have such a high quality customer on board also for our future. On the industrial IoT Clea side, which has come from the Camozzi deal, well, we are finishing as planned the development of the first solution, which is almost ready. We will launch by end of September on the market.
The good news is, we already got three big potential early adopters where we are in deep discussion with them in the test analysis. We plan to launch also the Clea Smart Factory vertical version, fully dedicated to the industrial automation side by early January 2023. I was over the phone with Mr. Camozzi before the call, and our partnership is solid like rock. He's introducing as he promised the SECO to new customers. They need to have hardware, software solution for their digital transformation. Camozzi is not only a provider of solution that we acquired, but it's an important shareholder that is supporting the company long-term speaking, and also an important customer.
We are working on many projects for them, and also an important business partner because is providing us a lot of new customers. Well, in SECO Northern Europe, we did a lot of job actually accelerating the growth part of SECO Northern Europe up to 22% of the net sales in the first half. We want to further increase the growth and fix a lot of things inside the company to enable us to a long-term successful growth. This is the reason why few months ago, I called a good friend of mine and a very outstanding manager in this market, which is Dirk Finstel, former head of Advantech business in Europe.
I know that Dirk Finstel is on the line, and I'm very happy to introduce you to Dirk Finstel, and to hand over to DirkFinstel for a short presentation. Please, Dirk Finstel, go ahead.
Thank you, Max. Can you hear me okay?
Yep.
Yeah. Once again, good afternoon, ladies and gentlemen. Yeah. My name is Dirk Finstel. As you might have read, I really have more than 30 years experience running global businesses in the tech industry. I've been management board member of Kontron, ADLINK, and also my latest assignment, the managing director of Advantech in Europe, but also did run in parallel the largest business unit in Europe with 550 staff and more than EUR 400 million of total revenues. From my perspective, I think, as Max has pointed out, we know each other for many, many years, more than 50 years. During my term in Kontron, I think we made and worked on acquisition. Why I'm joining SECO, I think is a very easy question.
I truly believe that the paradigm shift we see here in Europe that customers are looking for, more European-centric supply chain and R&D and manufacturing capabilities is a perfect point to really build a European-centric global player that might work on a full-scale end-to-end solution portfolio. As Max has pointed out, Clea is a very unique software industrial IoT AI solution in this market. We have all the resources in-house and can really run full-scale support to local customers out of own resources and keep the value chain inside of SECO. On the other hand, we have seen a lot of difficulties of other companies, matching European jurisdiction, as data privacy and GDPR laws are extremely complex in the industrial IoT environment.
As a European player, we are well positioned to gain like this business driven by the digitizing of business flows.
Thank you. Thank you very much, Dirk Finstel. I noted that someone is working behind you, which is definitely good.
I'm at the airport. Excuse me. Noisy environment.
No problem at all. Thank you very much for taking the time to be here. If you can mute yourself, we will continue our discussion. Thanks again, Dirk. We will find another occasion where you will not be in an airport to have a call. What's happened in August, in this August, because that is a sort of game changer in my mind on the software side of our business. There was a public announcement where Google basically communicated to customers that it is gonna dismiss all the IoT services by end of August 2023. Why this is so important? Because there are a lot of customers, bigger customers, that now are looking for another supplier of IoT software solution.
Well, many of them contacted SECO, and the reason why is because we have a solution, and we are an IoT company, so we are very focused in deliver this such of services long-term speaking. Which is not completely true after the Google decision for company like Amazon or like Microsoft. Many customers also at very big dimension are selecting company like SECO as a partner for their IoT infrastructure, which is so important in the next couple of years because it will provide additional and unexpected point of growth for the Clea business.
Another important point, for the future is for sure, the fact that, we are ready to put in our pipeline, a lot of solutions dedicated to AI because we strongly believe AI will be another game changer, and we are at the very beginning of something where AI will basically change all the process, providing a lot of benefits to customers. What it means? It means that, customers will be in a position to ask to have a lot of capacity in processing data. Customers have two options. One is to process such amounts of data in the cloud, and the other one is to process the data in the edge.
Apart from the real time solution, if you need a real time, you need to stay on the edge because going in the cloud, you will have latency. Cost-wise, is better to stay on the edge versus acquiring virtual computing on the cloud. This is the reason why SECO will present, starting from January 2023, a full set of new edge performance solution, which will be add-on. Something that will be insert in a normal product like an add-on for all our customers dedicated specifically to AI accelerator. That is important because it will provide additional opportunity to grow our business and to from this kind of business, we can easily have as add-on the Clea solution. This is basically the end of the presentation.
We can start now with the Q&A session.
Thank you, Massimo, Lorenzo, and Dirk today for the update. 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 before asking your question. Thank you. Our first question today comes from Anna Frontani, from Berenberg. Please unmute your line, Anna. The floor to you.
Yes. Hello, everyone, and good afternoon. I actually have two questions. The first one, I appreciate that Max already touched on this, but if we could maybe get a little bit more color on the sustainability of the top line trajectory, what does it make you so confident that there will be, not be a normalization on the top line beyond 2022? In which sector or category do you see the biggest opportunity? That's the first question. The second one is actually on the outlook for the shortage of electronic components. In previous earnings call, you mentioned that we should start seeing the headwinds normalizing from Q3, Q4 this year. Also, thanks on the mitigating actions that you have took.
I was just wondering, is this still the case, or do you have any update on this? Thank you very much.
Thank you, Anna. Let's start from your last question. About the supply chain, we are already starting to see improvement. Unfortunately, the improvement is low, but we are continuing to observe them. We plan to be without shortage somewhere in the beginning of 2023. We will see improvement during the third and fourth quarter of the year for sure. To observe a normal situation, I would suppose we should wait the first and second quarter of 2023, where we see a full normalization of the market without any kind of impact due to the shortage. At that point, we will see the level of inventories starting to go down and the level of cash generation of course improving a lot.
Recovery into gross profit margin hardware wise, so a lot of positive effect. If you can think that we missed the EUR 6 million that was already in the backlog in the first half, while this is EUR 6 million, basically means that potentially we could close the book at EUR 100 million already in the first half with at least EUR 2.5 million more in EBITDA. I think once the shortage will be over, we will see a lot of positive impact on our business. Your first question is very simple to me because we have a lot of new customers in many different kind of sectors. I like to mention a few of them.
One is very big in the smart city area, where we are presenting an EV charger, a new EV charger station made with a SECO product inside, both on the edge computer and in as a Clea platform, in a very big conference next Monday in San Diego together with Intel and another company. This will be a big trend in the future three to four years because I would expect to sell a lot of such solutions. There is a huge demand in EV charger station solution. Voting machine is for sure another niche where we grow a lot because we got a very big new customer that will start with a big program next year.
This is the South American player, of course is the number one over there, but is very well positioned around the entire world. The last, but not least, we are getting a lot of traction into industrial field with the acquisition of three big new customers in Europe and one in China. We have a strong order backlog. The strong order intake, you can think that only in August, which is not a strong month at all. We was able to collect around EUR 87 million of new orders only in August. The September started extremely well.
The majority of our customers will order for the entire 2023 because they are scared about the supply chain issue, and they would like to put down all the orders for the entire 2023 before the end of the year. I would assume that we will be by the end of the year having at least 80%-90% of the total 2023 growth path in our book already. I think the visibility on the 2023, this is one of the few positive consequence of the shortage, but is increasing.
Thank you very much.
Thank you, Anna, for your questions today. We now go to Tytus Zurawski from Goldman Sachs. Please go ahead, Tytus, the floor to you.
Thank you. Hi, Max. Congratulations on your results. I've got two questions. One on M&A. How should we think about your M&A strategy, and are there any balance sheet limitations, given your leverage? My second question is on Olivetti, Telecom Italia partnership. Given that, KKR is out of the picture now, how is the partnership progressing? Are orders coming through? And what sort of contribution should we expect this year and in 2023? Thank you.
Thank you to you. Well, starting from Olivetti, Telecom Italia, you are right. The KKR deal is over, and we was able to return back with them and discuss business. Actually, we have with them good program on the PNRR, which is the European program for innovation and digitalization. We see also important programs that are coming from their network. I would expect to see impact from the partnership starting from 2023. It's too early now to define exactly the dimension of the impact, you know. I will be more specific for sure on the next quarter call. The work is back to the normality and we starting to see signs of traction in this partnership finally.
On the M&A side, I would like to say that 2022 we will be focused on executing our internal plan and execute and deliver what we are focused to make, hopefully to beat the guidance or at least to achieve it. That's our plan to improve the cash flow generation. I think 2023 we will be in a very good position on balance sheet wise. At that point, we can have space to manage an M&A. I have a target on my table, which actually I am very interested in. Couple of them, one in the hardware space, another one in the software space. We should choose one or another. They are all the two in U.S. and I will be focused on them later on.
We have good discussion in place. I don't want to accelerate too much the discussion right now, but I think in 2023 we will find the good windows to try to achieve another M&A deal and to continue to mix an important organic growth with quality M&A acquisition. That's all.
Thank you very much.
Thank you, Tytus, for your questions today. Oh, sorry, my apologies. We have Andrea De Vita. Andrea, if you'd like to unmute your line, please go ahead. The floor to you.
Yes. Well, thank you and good afternoon to everyone. Just two questions, business model-wise. One is related to, I have seen the next steps. You mentioned two very interesting things. You don't mention anymore the App Store project. I wonder whether the Camozzi deal with more focus on industrial IoT makes less compelling or postpones the project of having early next year a B2B app store. The second point is on business model. Again, I have seen the C3.ai, which is moving its revenue model from subscription to consumption. I wonder whether you can somehow or at some point move to this kind of model or if your pricing structure already fits your different customers according to their consumption needs. This is the question. Thanks.
No, thank you. Thank you for your question. App Store's plan, we already communicated it, so I don't want to repeat myself. Excuse me, because maybe could generate some doubt, which is not the case. We still plan to launch the app store, Clea Store by end of Q1 2023. We are preparing everything. We actually already got commitments from a lot of customers to be part of this kind of stores, so. We definitely think that medium term speaking, this store will really create an ecosystem around Clea, providing a lot of benefits to our software business. On the business model, you are completely right. We will evolve our business model. It's too early now.
This is something that is gonna happen maybe in 2024 sometime or in 2025. Let's see when exactly will be the right time. We will evolve. I don't want to shift the model. I don't want to mix the model, which is a bit different from what the C3 AI is making, but in some ways similar. Yes, that is the direction and the right formula in my mind is a mix and combination of the two. A combination in between a monthly fee and a fee based on consumption will be the case.
Okay. Thank you.
Thank you, Andrea, for your questions today. We now go to Marco Vitali. . Please go ahead, Marco. The floor to you.
Good afternoon. Good afternoon to everybody. Thank you for the presentation. I have a follow-up on the, let's say, on profitability side. We have noted that the path of the improvement, quarter and quarter improvement in profitability was driven by volumes rather than gross profit. I'm wondering, going forward-
Marco, I'm sorry to interrupt you. I'm not sure if you can speak into the microphone. We can't hear you very well. Thank you.
Yeah. Can you hear me now better?
I think a little bit better, yes. Thank you.
Oh, okay. Thank you. I will repeat myself. I have a question on profitability. We have noted that the bulk of the quarter improvement in the margin was driven by volumes rather than gross profit. I was wondering, taking into account your previous statements on the state of the art of supply chain issues, should we expect any significant improvement in gross profit going forward over the second part of the year, or should we expect volumes to continue to be the key driver margin expansion over the remainder of the year? This is the first question. The second one is a follow-up from Clea. I was wondering, we have noted a step up in the quarter pace of Clea subscription EUR 6 million.
I was wondering, what is the percentage of the NRE of this figure, and if the EUR 6 million per quarter, it is, something that you can project also going forward. Thank you.
Right. About the second half, we will expect to see gross profit margin slightly better than the first half. The key driver of the profitability will continue to be the revenue growth. On the second question regarding Clea, I think about the EUR 6 million, we still have big contribution. I should say around EUR 3.5 million, EUR 4 million from NRE, because we are in the very beginning of something. We are not in the end. We are still working in defining and customizing a lot of algorithm for customers. After it, the customers start to rolling out the solution. We have now couple of million of recurring revenue under EUR 4 million versus EUR 4 million of NRE, meaning related to project.
The good news is, in the future, also the project will be finished. We will for sure have the benefits to transform this as a source of revenue into recurring revenue. We are continuing to get new customers and new projects that are coming. I would expect Clea to continue to stay at least at 10% of our total group revenue by the end of the year.
Okay. Thank you.
Thank you, Marco, for your questions today. Currently, we have no further questions queued, so we will just wait a few moments to give everyone the opportunity. Alternatively, if you do have any follow-up questions after the presentation today, please do reach out to the SECO team, as they would be happy to answer any follow-up questions you may have. If there are no further questions, I will now hand back to Massimo Mauri for any final comments before bringing this presentation to a close. Please go ahead, Massimo.
No, thank you. Thank you to everyone on the line. Marco Parisi is always available if you have any further questions or follow-up. Have a great continuation of the day, and see you soon. Bye-bye to all.
Thank you everyone for joining today. This presentation will now come to a close. Thank you.