Good afternoon, this is Chorus Call Conference Operator. Welcome and thank you for joining the Sesa nine-month, full-year 2024 Consolidated Financial Results Conference Call. As a reminder, all participants are in listener mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance through the conference call, they may signal our operator by pressing Star and Zero on their telephone. At this time, I would like to turn the conference over to Jacopo Laschetti, Stakeholder IR and Corporate Sustainability Officer. Please go ahead, sir.
Good afternoon, and thanks for joining Sesa Group presentation. On behalf of Sesa, are participating Alessandro Fabbroni, Group CEO, Elisa Gironi, Corporate Governance and M&A Director, and myself as IR and Sustainability Manager. In the late morning, we made available on the Sesa website our 9-month corporate presentation that you may follow during the conference call. Today, our Board of Directors has approved the Consolidated Results as of January 2024. Alessandro will open the presentation with an overview of our main strategic achievements.
Good afternoon and thanks to all of you for joining our call. Today, we disclose our 9-month results as of January 2024 that, as usual, represent a proxy of the full-year trend. In the 9 months as of January 2024, we reported once again a good improvement in digital skills, revenues equal to EUR 2.4 billion, up 10% compared to the prior period, and operating profit growing by 16% with an EBITDA margin up to 7.5% compared to 7.2% year-on-year, with an EBITDA adjusted at 6.1% compared to 5.8% year-on-year. In the period under review, we increased our market share in all business sectors with solid organic growth, contribution from external lines such as M&As of around 40%, reporting a growth rate significantly higher than the Italian IT market, that grew by 3.2% in 2023 compared to 3.9% in 2022 and 8% in 2021.
To be underlined that the strong performance of our VAD sector we achieved with a mid-single-digit growth as of January 2024 is in comparison with the reference market declining around 7.5% in 2023. Also, to be underlined, a great 40% growth of the Business Services sector that improves its development path as a reference player in digitalization of the Italian financial services industry. We also accelerated our development of digital skills and people up 20% year-on-year with around 5,600 people and 950 new hires last 12 months by focusing on business applications, consulting, and integration services to sustain the digital evolution of enterprises and organizations, driven by the so-called trendsetters of IT enabling technological innovation as cybersecurity, cloud, digital platforms, data science, and generative AI.
In the 9-month period under review, group revenues achieved EUR 2.4 billion, up 10.1%, with positive contribution from any of our business sectors, each gaining significantly market share from the competitors. VAD revenues were up 6%, sustained by our B2B system integration market positioning, with over 80% of business driving from enterprise software, cloud, and networking, and less than 20% coming from physical technology. System integration revenues were up by 21.4% thanks to the great development of the main operating BUs from digital security to cloud, ERP and vertical, up to the data science, and our enlargement of the customer set from small and mid-corporates to mid and large enterprises. Finally, the business services sector reported an outstanding 40% growth driven by the development of applications and proprietary digital platforms for a customer set that reached around 750 banks, insurance companies, and financial services players.
Consolidated EBITDA reached EUR 180 million, up by 16% year-on-year, with an EBITDA margin equal to 7.52% higher than the 7.17% as of January 2023. The VAD EBITDA increased by around 5%, achieving EUR 92 million, with an EBITDA margin equal to 5.10% compared to 4.9% in full year 2023 and flat year-on-year. System integration EBITDA was up by 21.7%, achieving around EUR 75 million, with an EBITDA margin equal to 12.2% compared to 12.1% in full year 2023, while the business services sector EBITDA reached EUR 11.1 million, increasing around 130%, with an EBITDA margin improving to 13.4% compared to 8.2% year-on-year. Consolidated EBIT adjusted gross of amortization driving from PPA reached EUR 146 million, up by 16.2%, with an EBIT margin equal to 6.10% higher than 5.8% as of January 2023.
The VAD EBIT increased by 6%, with an EBIT margin equal to 4.7% flat year-on-year, while software system integration EBIT increased by 27%, with an EBIT margin equal to 8.3% compared to 8.0% year-on-year. Finally, the business services sector EBIT grew by around 200%, with an EBIT margin up to 8.7% compared to 4.1% of the previous year. Bottom line, group earnings after taxes adjusted achieved EUR 84 million, up by 6% year-on-year, with an EAT margin equal to around 3.5% after net financial charges that grew to around EUR 24 million compared to about EUR 9 million year-on-year due to the strong increase of market interest rates. We also confirmed group's financial strength and capability to invest by supporting the future growth.
In the period under review, we reported positive cash flow generation with an operating cash flow of about EUR 120 million last 12 months, with around 55% EBITDA cash conversion, net of investments in corporate acquisitions and technology infrastructure for EUR 175 million, and dividend distribution and buyback last 12 months of around EUR 25 million. Finally, consolidated net financial position as of January 2024 closed active for EUR 148 million compared to around EUR 200 million as of January 2023 as a result of net working capital growth from EUR 23 million up to EUR 50 million as of January 2024 and with significant investment in the last 12 months equal to around EUR 175 million. Now, I give the floor to Elisa Gironi, who will provide us an overview of our M&A and integration programs.
Thank you, Alessandro. The external leverage boosted significantly our growth with a 30% contribution to our 13% annual average growth 2012/2024 equal to 12% in revenues and 16% in EBITDA. In the period under review, external lines generated around 40% of our growth thanks to 13 new M&As last 12 months, combining about EUR 65 million revenues with an accretive 20% EBITDA margin and by onboarding over 500 skilled human resources. We selected the target companies in the group's strategic areas of development as security, cloud, digital platforms, data science, representing some of the main digital trends of innovation technology.
In the VAD sector, after the start of consolidation of Altinia Distribuzione, reference player in managed printing solution with annual revenues equal to EUR 50 million, with the start of consolidation from the beginning of fiscal year 2024, we enlarged the new business unit perimeter with the acquisition on July 2023 of Maint System, company with EUR 4 million revenues, EBITDA over 20%, and 45 human resources focused on IT services and solutions for the printing segment. In the Sesa sector, we continue to improve our coverage on consulting, digital security, and proprietary vertical applications. On July 2023, we acquired 51% of Wise Security Global, company leader of cybersecurity Spanish market with expected annual revenues over EUR 10 million and an EBITDA margin equal to 20% and 120 human resources.
In October 2023, we acquired 100% of TRIAS Mikroelektronik GmbH, based in Germany and operating in electronic design software solution with EUR 3 million revenues, EBITDA over 10%, and 15 human resources. In the same month, we expanded our proprietary software solution thanks to the 60% stake acquisition of Soft System, company with 15 skilled human resources, annual revenues of EUR 2.5 million, and an EBITDA margin of about 20%. Finally, on January 2024, we acquired 51% of SmartCAE, company with EUR 3 million revenues, EBITDA of about 20%, and 15 human resources that combines computer-aided engineering software with design and consulting services, providing fluid dynamics and composite materials simulation solutions.
In the Business Services sector, we closed the acquisition of the majority stake of 130 Servicing reference player in Italy in the master servicing for the securitization, company based in Milan with 155 people, annual revenues of EUR 15 million, and an EBITDA margin of around 20%. Thanks to its organic growth, long-term agreements with some strategic partners and customers as Crédit Agricole Italia and Banca Sella Group, and the integration of last M&As, our Business Services sector targets in the fiscal year 2024 revenues for around EUR 120 million compared to EUR 84 million year-on-year, 800 human resources, and about 13% EBITDA margin. We also underline that starting from 2022, we accelerated the integration process of the companies combined through M&As inside our vertical strategic business units as competence centers and hubs of vertical skills.
The integration process consists in progressive waves from the interest alignment of the legal entities and its minorities inside the business unit to the centralization of HR management, marketing, and corporate governance, up to the intercompany merger among legal entities to maximize synergies and quality services to our clients. We continue to work on a wide pipeline of M&As in any of our business sectors to attract on industrial basis small mid companies with skilled human resources under sustainable 5x EBITDA multiple evaluation with a remote mechanism and progressive residual stakes acquisition to commit in the long term the key people of the target. Now, I give the floor to Jacopo to provide an updated overview about our HR and sustainability path.
Thank you, Elisa. After a great improvement of our ESG performance in fiscal year 2023, in the nine-month period, Sesa Group strengthened ESG programs and continued to increase the activities aimed at reducing its environmental impact and consumption of natural resources. In the nine-month period, we showed record performance in people management with 5,560 skilled human resources, up by 20% year-on-year, about 950 new hires last 12 months as of January 2024, and further improvement on loyalty rates. We continue to reinforce our education, hiring, and in particular, welfare programs with wider and specific measures to support parenting, diversity, well-being, and work-life balancing. This is thanks to dedicated programs in favor of diversity, equity, and inclusion. In terms of our capability to create value for our stakeholders, our last full year results were characterized by a significant improvement in ESG performance and the achievement of some relevant sustainable development goals.
We reinforced our group purpose that confirmed our corporate values and goals of long-term sustainable value creation for the benefit of all stakeholders. Digital innovation, long-term value creation, sustainability, and digitalization are the core pillars of our group strategy, defining its purpose. I also remember the award achieved at the end of 2023 when Sesa was included among the top 70 talent companies in the ESG observatory developed by the University of Milan-Bicocca thanks to our outstanding sustainability performance and ongoing strategies to reduce our carbon footprint. Once again, this award highlights the long-standing commitment that our group has always placed on the issues of sustainable growth and value generation. Now, I give the floor again to Alessandro for the final conclusions.
Thank you, Jacopo. In the last full year period 2020-2023, we invested around EUR 500 million, building a market leader and improving by over two times our revenues from EUR 1.5 billion to EUR 3 billion, people from 2,000 up to around 5,500, and group profitability moving the consolidated EBITDA margin from 5% up to 7.5% in the full year ending April 30, 2024. We achieved a unique market positioning with 40,000 customers and great capability to intercept the main digital trends and, despite a worsening market scenario, to deliver a double-digit long-term development path with potential additional growth. We developed a value-added distribution sector completely focused on the business segment and able to grow in a sustainable way over the last 10 years with a 5% best-in-class operating profit margin.
We became market leaders in the system integration and software for the mid-companies and enterprises in Italy, enlarging the customer set to medium-large size enterprises with an EBITDA margin higher than 12% compared to 7% five years ago, growing international presence and proprietary business applications. We also built a new group sector as business services that is becoming one of the reference players in the financial services industry with a unique offering of proprietary digital platforms and business applications and a great value creation that is not reflected yet in our financial statements and stock market evaluation. The results of January 2024 achieving a worsening scenario confirm our great development path in the light of the positive market trend and our strong market positioning.
Today, we renew the positive outlook for the full year ending April 30, 2024, with the guidance of EBITDA in the range of EUR 242 million-EUR 246 million, up by 15.5%-17.5%, and an EBITDA margin of around 7.6% compared to 7.2% of the previous year, and the target of EBIT adjusted in the range of EUR 186-190 million, up by 15.5%-18% year-on-year, with an EBIT margin of around 6.0% compared to 5.5% year-on-year, with expected consolidated revenue growth about 10%. In addition to our strong commitment for the full year 2024, we will continue to work and invest in order to extend our long-term growth also to the new fiscal year 2025 by targeting a growth in group operating profit in the range between 10%-15%, creating value as usual for the benefit of all stakeholders. Thank you for your attention.
Now, we stay available as usual for the Q&A final session.
We now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking a question. Anyone with a question may press star and one at this time. The first question is from Diego Esteban with Stifel. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. I was just wondering if you could give us a bit more color into the third quarter, particularly, because it seems to be a slight maybe deceleration. Yeah. Thanks.
So thanks for the question. So as you know, our group is in the middle of a transformation with a growing focus on value-added marginality sector as system integration and business services. You may observe that we performed really well over the Q3 of this fiscal year because in the system integration, we grew by 21% in revenues and around 21% in EBITDA, the same in the business services sector where we grew by 43% in the Q3 only and 150% in the EBITDA level. The same bottom line. So that means an EBIT adjusted that grew in a solid way, steady way, in both of these two sectors. So we have lower performance in the VAD with a decline in revenues and in EBITDA. That is mainly due to the lower trend of the industry in the value-added distribution.
The market in Italy declined by around 10%, and in particular, inside them by the segment of green technology. On the other side, we have to underline that we take a solid, really resilient EBITDA margin in that industry, so the VAD, in that segment, we perform with an EBITDA margin that is really best-in-class for our industry for 5.1%. So as a result, we work really well in terms of marginality because we perform with a 7.5% of EBITDA margin in that quarter. That is the quarter with a higher ratio of revenues from VAD due to seasonality. So that is the way we continue to be confident not only for the Q4 of 2024 but also in particular for the full year 2025.
Thanks. Thanks for the answer.
Thank you for the question.
If you wish to register for a question, please press star and one on your telephone. The next question is from Andrea Randone with Intermonte. Please go ahead.
Thank you and good afternoon. Just a question on the Business Services segment because this is a business unit that not only is growing very well but also is representing the most attractive new market for you. I wonder if you can comment about future milestones in this business, what is the visibility you have gained up to date about the developments expected, and if in the future months are you planning any communication event to better explain your strategy and market business model in this area? Thank you.
So many thanks for the question. So yes, this is a business unit and a new division that we started three and a half years ago moving from zero. We grew several companies with a great focus on digital platform consulting and business applications. We built a division that is growing by over 40% last year and also this fiscal year with a target of revenues between EUR 110 million and EUR 120 million this fiscal year and with the same perimeter, so like-for-like perimeter, a target of over EUR 150 million the fiscal year 2025 with an EBITDA margin that may be between 13%-14% as we already achieve in that fiscal year. So that is a great opportunity market area because banks and financial services players are mainly focused on digital transformation, and we intend to develop proprietary application and digital platforms. So that is the way we are improving so well.
100% of the business is recovering. We developed a great portfolio of customers that are the main Italian banks and financial services operators. We recently added a great company operating in the services for the master servicing securitization activity. We are really glad to have started this business unit that may be EUR 250 million-EUR 300 million revenues in the coming 3 to 4-year period with great EBITDA marginality and also EBIT marginality. I underline again, as I already did in my previous sentence during the call, that the results of that business unit, so the expected results, have not been reflected yet in our financial statement.
In particular, partially reflected because we have to account several IFRS debts because we invested a significant share of EUR 175 million of investment over the last 12 months refer to this new business unit, and the return on this investment will be generated in particular starting from 2025, 2026. So that is a great opportunity for us. In terms of communication, we would like to organize, as already announced, an investor day towards any of our stakeholders that we will organize in the first half of next month of June. And one of the points that we like to underline will be the strategy and the opportunity to grow for our organization in that area that, I underline again, represent a great opportunity of value creation and also for the benefit of all stakeholders, all our stakeholders.
Thank you.
Thank you.
The next question is from Aleksandra Arsova with Equita. Please go ahead.
Hi. Good afternoon. Thank you for taking my questions. I would like to know a little bit more about free cash flow and free cash flow conversion. You can explain better what is the amount of free cash flow generated in the nine months and what you expect for the full year. Thank you.
Yeah. Thank you for the question. So we reported over the last 12 months a cash flow generation of around EUR 120 million with an EBITDA cash conversion equal to 55% compared to last three-year period cash flow generation that was more or less equal to 70% of EBITDA. That is the result of lower decrease, so slight decrease in our net working capital to revenue efficiency because the working capital year-on-year improved by around EUR 30 million. That means after 40 quarters, 40 consecutive quarters of improvement of net working capital to revenues, we suffered a slight decrease.
We plan to recover the positive path experienced until now starting from the new fiscal year 2025. We had around EUR 175 million of investment, of which in particular, EUR 135 million-EUR 140 million deriving from M&As, most of them concentrated in the area of business services and software and system integration.
I underline also that in the last 12 months, we distributed dividends and completed by that plan for around EUR 25 million. So that means we have an improvement. So that means an increase of our net financial position because we moved from a positive net financial position reported for EUR 15 million end of January 2023 to a net financial position that was negative in the sense of net debt at the end of the nine months for around EUR 50 million.
Now, we plan to stabilize this trend for the new fiscal year because we will expect a lower level of investment for M&A, so a total amount of investment not so high as EUR 175 million we did in the last 12 months in order also to capitalize and generate cash flow from the great investment already did and also a possibility in terms of recovery of efficiency in terms of net working capital to revenues. Obviously, the trend we have in net working capital to revenues has been influenced, in particular, in the VAD by higher interest rates, and stabilization in the market of interest rates will help us a lot in order to improve to recovery in that area of management.
Okay. Great. Thank you.
Thank you.
The next question is from Marco Corsiglia with Intermonte. Please go ahead.
Yes. Good afternoon, and thank you for taking my question. I'm not sure if my calculation is correct, but it seems that to reach the full-year guidance, a certain acceleration is needed in the fourth quarter. So my question is, is there any element that could have affected the third quarter negatively which may somewhat disappear or reduce the effect in the fourth quarter?
Thanks for the question. That is really interesting for us. Yes. Now, we expect a good trend of the fourth quarter. So that means around 9% global revenues and between 15% and 20% in profitable. First of all, consider that in the Q4, the share of total revenues coming from VAD is really low. And so what we expect now is an enlargement of the positive path of the 20% revenue growth and 40%, respectively, in System Integration and in the Business Services. On the other side, a stabilization of the trend of VAD that was negatively impacted by the really negative performance we have in the green due also to temporary problem in the supply chain and a strong decrease of the price of goods sold. So that is the way we plan to recover so well in the Q4.
I underline that also in the Q3, we performed really well as a group except for VAD. And so that is one of the main points. Another point that is relevant in terms of net profitability is that we expect to achieve the peak of net financial charges at the end of the Q3. And the comparison year-on-year will improve starting from the Q4 and obviously will be in our expectation that is really our expectation to be able to recover in the full year 2025. So that is the way now we plan and we announce our guidance for the end of 2024 and the full year 2025.
Okay. Thank you very much. Very clear.
Thank you.
Once again, if you wish to ask a question, please press star and one on your telephone. There are no more questions registered at this time. Ladies and gentlemen, thank you for joining. The conference is now over. You may now disconnect your telephones. Goodbye.
Goodbye. Thank you.
Bye-bye. Thanks for all.