Ladies and gentlemen, welcome to 74Software 2024 full-year results conference call. Throughout today's presentation, all lines will be on a listen-only mode. Later, we will conduct a question-and-answer session. You may register for questions at any time by pressing star one on your telephone keypad, and now, I'd like to hand the call over to your host, Patrick. Please go ahead.
Thank you, Sergey, and thank you for joining us for today's 74Software 2024 full-year results. As we begin, I want to remind everyone that today we're going to be making a forecast and guidance about the future. These are subject to certain risks and uncertainties, as usual. You could read more about these risks and uncertainties in the URD, which is filed on the website. Let's begin. Our agenda today is I'll begin with some opening remarks, then Éric Bierry and I will deep dive into the SBS and Axway activities for 2024. Tobias Unger, who's a new member to the team here on stage, will be joining us to go through the financial results. Then I'll come back with closing remarks and our guidance. As I said, Éric Bierry, our Deputy Chief Executive Officer, is joining me.
And he's been on stage with me here before, and we'll talk about the SBS business and the overall general business. I do want to spend a little bit more time continuing to give more and more color on the SBS business, as it's only been combined with Axway for four months. And I want to give some market awareness of what we're doing with the portfolio of products within the SBS business. And Tobias Unger has joined us as Group CFO and will be covering all of the financial matters. So let's begin. We're entering a new era. 74Software rebranded in December. It's the combination of Axway and SBS. We completed this transaction in September after, quite frankly, a year of hard work by the team to do a carve-out of the SBS business from Sopra Steria.
And we left behind some very service-oriented activities and brought over the software editor activities to form 74Software with the product portfolio of Axway. And we've been operating together for four months. And during the rights offering roadshow, we gave guidance on the 12 months plus the four months of the combined business. And one of our primary goals at that time was to keep the teams working hard in the field, working towards their objectives, and not get distracted by all the noise created by the carve-out and the tough work of the purchase of SBS by Axway. And I'm happy to say that we see that in the results for 2024 that we'll go through with you now. The team was not distracted, kept their eye on the target that they had for the year, and the objectives were hit.
And the objectives on both companies were hit more towards the higher end. And as we start into 2025, we are starting with a nice level of strength as we launch the year. And we've already gone through our budgeting build process and already planned out the year. And we're launching it perfectly in line with what we talked about during the Rights Offering Roadshow. We are now listed on the Euronext under the ticker 74SW as we rebranded in December. We also are looking to continue to leverage our portfolio across both companies, looking for opportunities as well to work together. And we can hit on those a little bit later. But we're doing it with the same purpose as always. We want to continue to maintain being an independent technology provider that sustainably grows and to bring value based upon trust for our customers, employees, and shareholders.
I continue to emphasize that, and I'll hit on it in a bit, through our market-leading portfolio. We want to continue to deliver successful customer outcomes because both companies' strategy targeting the more enterprise-level customers relies on getting our customers successful for the repeat sale, the good references, and the branding in the market. When you look at our basic premise, we're trying to solve strongly our three constituents: our employees, trying to make the group the place to be and that they want to be at to help us build our future. For our customers, delivering brilliant customer experiences time and time again. For our shareholders, if we do the first two well, we expect to build a long-term, predictable, and profitable company that returns long-term value to our shareholders.
As we've launched the first four months together, when you look on a full-year basis, and we'll go into a lot more detail in the presentations following, the 2024 pro forma revenue finished at EUR 690 million with combined organic growth of 5.6%, which led to a 2024 pro forma Profit on Operating Activities of roughly EUR 94 million, or 13.6%. Axway, on a standalone basis, finished the year with record-high NPS, employee engagement score, and had its most profitable year ever on top of its targets that we set at the beginning of 2024. SBS also had strong growth at, I believe, 7.8%, and it continued to accelerate its transformation and successfully deploy new offers in the market. Let's go ahead and take a little more of a deep dive on SBS and an update on Axway activities.
I'll go ahead and start and provide a quick update on the Axway activities and then ask Éric to join and go deeper into the SBS business, so for 2024, Axway, as a standalone business, was able to add 121 new customers. As you could see under the product line trends, the MFT business had significant new customer acquisitions, especially in the North American market. Certain market dynamics allowed that business to win away from our competitors a fair share of new customers in the 2024 year. Further, our API management business, we have a core API management business, which had a very successful renewal and upsell through usage of the core API management platform. But that product line also is developing the future version and technology called Amplify Fusion, which adds iPaaS capabilities and other capabilities. We were able to sign 15 new early adopters of that technology.
And we're happy to say that in 2025, Amplify Fusion will be available to all sales teams to attack the market with, as we're taking it to a GA status for the 2025 year. And our B2B integration continued to be strong in the marketplace within its customer base. We had a nice year in North America. We had good growth in that region. And we continue to have analysts recognize the strength of the Axway portfolio and have rated us well both in API management and G2 across our portfolio. And we saw that our subscription revenue, both in customer- managed and Axway managed, grew nicely in 2024. And so going back to the three metrics, how we track or how the business is doing for NPS or for the customers, employees, and shareholders, we track the net promoter score metric that we've talked about now for many years.
We hit a record high in 2024 at 52. And when you look at the employee engagement score, our measure of how the employees are looking and buying into the strategy and their engagement in the strategy of the business, which allows us to deliver on that strategy, we hit, again, a record high in 2024 of a score of 70 from a previous, I believe, last year was at 69. And then finally, on the profitability, as I said, that was also a record high in 2024, finishing at almost 21% profit on operating activity, just 0.1% shy. But that was the highest in Axway's history. And what this is showing is that we can run the business profitably and treat the customers well and the employees well and get everybody on the same journey. And that it really creates an ecosystem for success.
We've been able to find the strong business model to allow us to do that. In fact, I wanted to go through a little bit of a timeline on Axway because it helps explain a bit the SBS story in a way. If you remember right, we started this journey of the transformation and moving towards what we call a General Manager Model, but really focusing on the core portfolio that we can be market-leading in our niches, providing good customer value, focusing on the customer, focusing on the employees. In 2021, we kicked it off, or in 2020, we really kicked it off, launching it through 2021.
We continue to put in place a new business model, put in place new leadership over the different regions of the core product lines, continue to focus, focusing on what portfolio we wanted to deliver the value to the customer with and to really support that customer interaction, that customer journey, focus on listening to our employees and the feedback they're giving us and how we could improve and make Axway a stronger company. By doing that and keeping this level of focus over the four-year period, finishing in 2024, you could see we've improved on every core metric that we were talking about and tracking in the business on the profit on operating activities, on the net promoter score, on the employee engagement score.
And additionally, we've been able to see that the organic revenue growth, excluding the products that we disposed in 2022, was almost 4% over the last six-year period versus the 1% organic growth that we averaged from the IPO to the 2018 period. So by running a very disciplined and focused model, we've been able to make this change in Axway that's been delivering the results steadily and consistently over the last, let's call it, four and a half years. We have had some bumps. And for those of you who were with us in 2021 Q4, we had a profit warning that period.
When we had those periods where we struggled, we were able to take the knowledge we gained on how we should not miss that in the future, how we could put in place a discipline either on the portfolio, which led to us disposing some of the portfolio products that weren't working in the portfolio mix, or on the forecasting or on the financial also health of how to run a portfolio company. We've learned all through the way. I could say this transformation is now starting to be in the rearview, and the teams really hit their stride. I've said before in prior analyst calls here that I'm not sure where the plateau is, somewhere between 20% and 21% on the profit on operating activities. I'm really happy to see that we've now been doing a more stable organic growth year- over- year the last three years.
We're looking forward to hopefully that continuing at that pace. With that, as SBS is on a very similar journey, I'm going to invite Éric to go through the SBS journey he's taking the company on.
Thank you, Patrick. Good evening. I think we have a clear guideline looking at the next four or five years because we can consider that where we were inside SBS and obviously inside the Sopra Steria Group in 2023, it's more or less the same starting point than 2020 just explained by Patrick. Let me come back into this journey first. Inside Sopra Steria Group in 2023, and without knowing anything about that transaction, we took the decision to progressively pivot the business model of Sopra Banking Software at that point in time. It was the name.
We did put in place something very similar to what Axway did put in place, which is the GM model early in January 2024. We were convinced that we did have to run a software company with a product-centric approach, reason why we did put in place the GM model, and of course, led by the market in terms of strategy. We did that 1st of January, and the announcements arrived just two months later, so meaning that one of our critical challenges during 2024 was to run our transformation first, and it was the most critical thing to deliver, and in parallel to avoid as much as we can disruption by the announcements and of course by all the work, and then by the merger.
Looking at the second quarter, we did work continuing, obviously, around the transformation, but we took the decision to carve out more or less EUR 100 million revenue, so mainly services-based, but I should say non-core activities. There were some IP, but we are considering that it was very critical to stay very focused on what should be serving our software strategy and letting Sopra Steria continue with that activity. So we did carve out EUR 100 million, more or less 1,000 people. By the way, that activity did grow in 2024 between 5% and 6%, so meaning that this services activity was and is still growing. So this is the second disruption following the announcement, and of course, the third one inside the transformation journey. Then looking at H2, and obviously the announcement of the transaction the 2nd of September, we were very focused in delivering that transformation.
We know that it's going to continue to take two to three years as a minimum. But when we are looking at the result, I think there are three things which are very important. First, we have been able to be predictable, predictable because we did avoid the disruption in H2, but also predictable because the product model did help us to anticipate better our revenue and to deliver at the end of the year more than 60% recurring revenue only on the product. And that part was very critical, and it was something we were not able to achieve in the past. And I think that we obviously need to continue to improve, but it's the right journey and the right direction, especially in the context of 74Software.
Second, it was a big question to estimate what should be the good volume of services because we all know that business applications are requiring a lot more services for supporting better our clients because the end goal is to secure that our clients are really well using our product and very well implemented within all their ecosystem, so we were at 40% plus, I would say, one year ago, and we are landing around 30% after that carve-out on a pro forma basis, and we do consider at the moment that this should be that range on which we should be continuing to work for the coming years and especially for 2025 because we see that moving below would not make any sense to support our clients, especially on the new offerings.
And on the other side, doing more would become doing some additional commodities which are not at all fully aligned with our strategy. The third one in H2 was also very important, to secure that we are able to not disrupt our clients, and our client base is quite huge. And in parallel, to leverage our positioning, we did that large client base to start what we are calling internally the progressive convergence, meaning adding to our existing client base the ability to consume new digital native services even if our products are for many of our clients on-prem. And this is a very important topic because we are progressively moving into a SaaS strategy, but this is very progressive, meaning that it's not our existing product implemented within our clients which are moving to SaaS, but these are additional services such like following the regulation.
You all know that within the banking sector, regulations are popping up more or less every quarter. The last message, and maybe it's very important when we are looking at the journey and we do compare with Axway. Today the volume of subscription where it's managed by our clients is really small, meaning that it's representing in 2024 something like EUR 9 million in total. So looking at the total revenue, it's not at all a large number. We are not anticipating to look at the future in transforming that business model. So what does it mean? Today, when we are growing, the demand from the market is mainly SaaS. But when I'm saying SaaS, it's meaning operated by us.
And as a consequence, it means also that when we are taking an order book, we know that the time to recognize the revenue linked to that SaaS offering is quite long, at least longer than within Axway. So when we know that we are taking order book on the new offerings in 2024, we know that this is giving for us a predictable revenue coming, I would say, on some products after six or nine months, but for the main one and especially around the Core Banking activities within 18 months to 24 months. And it's very important in our ability to become even more predictable. But also, it's important in looking at the difficulty we should be having in suddenly visiting our clients and our market and to shift what Axway was calling migration.
So, meaning existing clients with license and especially a lot of perpetual license on our side, then suddenly to move into a subscription model where it's managed by our clients. So we are not anticipating a strong shift within that business model. If we are looking at the SBS portfolio, and it's maybe the first time we are, I would say, describing that portfolio, there are four key pillars. Let me start with the integrated banking product. So we are talking about in detail three core banking, three different integrated core banking, which are each of them serving different niches and especially from a geographical perspective. So one is for Africa with a very strong leading position with more than 200 implementations. The second is in France.
The very recognized name is SAB, and we are serving more than 40 clients within only France for tier two to tier four banks. The third one is Thaler. This is mainly for the Benelux region, even if there are a few implementations in the U.K. These three core banking activities will not be disappearing first because they are very important for the core business of our client. They are moving to the cloud. This client base is expecting us first not to migrate from one to the other because there are no business benefits for our clients, but they're expecting that we do continue to bring additional services linked to the regulation or linked to new features expected by that market.
This activity, we should not be expecting more than a single-digit growth, but that activity is super important for our resilience to the market looking at a long-term basis. The second is banking components, and I should say it's at the beginning more dedicated to the tier one expectation. A large part of the knowledge around that activity is linked to the tier one traditional features, meaning that they like to assemble components with a large depth of functionalities. Today, we are expanding the usage of that component, first, because our tier one clients are expecting us to move to the cloud, of course, but also to bring additional features and functionalities linked to regulation. Second, because we are in a situation to pre-parameterize this kind of component and to cross-sell then to other client base.
We also do see a growth and long-term very resilient, but again, on a single-digit basis. The third one is a more global activity. We are talking usually about specialized finance or what we call financial products in the portfolio. There are two main parts. One is linked to usually we call it auto finance business or floor plan financing. This is a global one with a very strong footprint in the U.K. and the leadership position and a fast-growing position also in North America where the big OEMs and captives did ask us to follow them in North America at the beginning and now with a clear local strong business strategy growth within that niche.
We can say that we did have some good success, especially with one of the largest players in the U.S. and where they are looking at financing and auditing more than 20,000 dealers within their network, which is, I should say, a good start for us looking at North America, especially today when we are in the same group in 74Software where the presence in North America is quite strong. The second part of that financing product is linked to mortgages in the U.K. where we do have also a leadership position. It's more than 35% market share.
We are talking about the building society area, and there is a strong demand at the moment, and especially first looking at SaaS solutions because these building societies want to focus more on their core business and letting players such like us to completely operate all the origination to servicing about the mortgages. But second, also they are expecting to move and to provide to their clients a more larger spectrum of features and activities, and we should be anticipating also growth within that area to prepare the future in the next two to three years. The last one is the modular banking product. So when I was talking five minutes ago about the progressive convergence, it's where we are investing at the moment.
When I'm saying investing, we are investing on a SaaS-first public cloud strategy and not reinventing or rewriting a core banking system, but developing progressively all the new features, digital native, and I do insist cloud and SaaS by design to be cross-sell to our existing client base because this is giving us a proof to our clients, to also to us that progressively we are hitting our market and as a result, to progressively be able to design and deliver a full new core banking system for tier two to tier four banks. Today, mainly focused on Europe, of course, because it's where we are able to leverage our client base. For the future, obviously, we can see where we're going to go.
So to give you just two examples, we are delivering instant payment for more than 20 institutions today in Europe, and where it's not instant payment delivered by our core banking, but delivered by that new feature, digital-native, where sometimes the client is on-prem or where sometimes the client is already operated by us. So if we are having a look at the four main investments, what we call Incubation Zone inside SBS, some of them have been already touched in my speech just previously, but just to give a clear focus, the first one is on the regulatory reporting. We traditionally deliver to 150-plus clients in Europe, mainly in France, to be direct. The reporting, and you know that the new regulation coming end of 2026 will be moving from aggregate regulatory reporting to granular reporting. It's a European one.
And of course, our traditional product was not ready to handle or maybe within a lot of investment, ready to handle that new regulation. So we took the decision to progressively develop that new product, again, SaaS, public cloud first, and to shift our existing engagement on the traditional one, aggregate one, and progressively to be ready within a large number of clients to deliver the new regulation IReF by end of 2026. Today, it's more than 100 banks which did follow us and more than 30 are already live, not live with the new regulation IReF for 2026, but live in having replaced the traditional product we were using in the past. The second is the digital engagement platform. So of course, traditionally, we were seen as a processing platform player, so what usually we call back office player.
But we know that a large part of the ability for differentiation for our clients is on the engagement, the way they're going to engage with their clients, being individual, being SMEs, being corporate. And we took the decision following some of our clients to progressively deliver that layer, supporting their willingness to personalize, of course, but also to engage better with our clients. And we launched a SaaS mobile-first platform for individuals and SMEs. One is live in the current days, and three others should be live during this year. And again, it's the way for us to deliver that proof to the market before engaging in a larger scale, our ability to deploy and to sell more globally. The third one is exactly the result I was talking just before in that progressive convergence.
The sum of all these different services has given us the first proof in H2 2024 to sign three clients, the three first clients. I would call them early adopters. One is in Netherlands, one is in Belgium, one is in the U.K., and the U.K. one, especially, is the large one. I think the complexity is not so big, but we are talking about a player with more than 30 million accounts, which is becoming quite significant when we are looking at the core banking. The last one is more linked to the specialized finance, or I would say the wholesale planning part. This one is not a huge investment, but we think that it's giving us the ability to disrupt the market, moving from traditional physical audits within the floor plan for dealers to a digital one.
We see quite immediately the benefit from a total cost perspective, of course. Second, to reduce the risk for the lenders. This is the critical driver to sell that solution. The third one also from an ESG point of view, because reducing physical audits means reducing the carbon footprint impact, which is not nothing looking at the large player we are having in front of us. That's what I wanted to share from an SBS standpoint. Let me now give the floor to Tobias Unger.
Okay, thank you very much. Welcome from my side as well. It's a pleasure to be here for the first time trying to explain to you the financials of 74Software Group. I will focus on the consolidated results.
As you have heard, we are a portfolio company with two distinct businesses, Axway and SBS, and we also disclose numbers for those businesses. But today in the presentation, I will focus on the consolidated results. You've heard already that we had a very good year and we finished 2024 strong as a combined business with 12 months of Axway and four months of SBS inside. We decided that we focus the presentation on our pro forma figures, which include 12 months of SBS as well, as this is really the only way to understand how the business performed. So except otherwise noted, it's always the performance figures that I'm focusing on. You already heard on the revenue, EUR 690 million from Patrick. We also disclose ARR figures for both Axway and SBS, and I'll come back to that on a dedicated slide.
But we had on both businesses a nice growth rate on the Axway side, 7.4%, and on the SBS side, 11.8% on ARR as well. The margin of 13.6% was mentioned already. This is a mix of two very distinct or two businesses at very distinct moments in their corporate development. Axway at 20.9%, SBS at 6.9%. You have heard already from Patrick and Éric on where the businesses stand, and that's really reflected here in the blended margin. In terms of cash flow, we're focusing on unlevered free cash flow, which is the cash flow before interest payments and before exceptional items. This is a cash flow figure that we control and we can predict, and therefore our focus today is on that number, and also in the guidance, we will focus on that number.
We made 5.7%, and this figure is on a 12 months plus four months SBS basis as it was not possible to calculate that on a pro forma basis given the carve-out and the way the transaction worked. In terms of our leverage ratio, we ended the year at 2.87x and gearing ratio at 0.47x . Both these ratios are well in line with our debt covenants, so we were very comfortable meeting the requirements on that side. Finally, the earnings per share, again on a 12 months plus four months basis, this is the only way that makes sense, EUR 1.67 a share. In terms of the pro forma income statement, we included this in our disclosure, the pro forma statement, 12 plus 12 months. We have the IFRS consolidated 12 months plus four months statement that we then also compared to the stand-alone Axway 2023 statement.
I'm not going to go through the whole statement. This is more to explain what we are disclosing and what the difference is. And as you can see, the four-month statement, sorry, the IFRS consolidated statement, which includes SBS for four months, shows a higher profitability than the pro forma statements. And that's because the last four months of the year for SBS are quite strong months in terms of profitability. On the cash flow side, it's the other way around. There are poor months within the year, and therefore the cash flow on a 12 months plus four months basis is lower than it would be on a pro forma basis. In terms of the revenue growth, the numbers I think were already mentioned by Patrick, but we had strong growth on both sides of the business. Axway with 3.4% organic growth and SBS with 7.8% organic growth.
Organic growth being the growth at constant exchange rate and excluding the effect of scope changes. As you can also see, consolidation adjustments and FX impacts were very small in the past year. There is not a lot of business sold between the two companies, and the FX rates in U.S. dollar especially was basically flat from one year to the next on average. We do have exposure on U.S. dollar and some exposure on British pounds, which is the second most important currency for us. I'll spend a couple of minutes on how we disclose our revenue in the future. It's not very dissimilar from what Axway was doing in the past. There's slightly different nomenclature, but I would like to just explain in a few minutes what is what and how we're going to disclose it in the future.
First of all, we had group revenues, and this is all on pro forma basis again, of EUR 690 million. Out of that, maintenance and support revenues, EUR 195 million made up 28% in 2024, and this is down from 34% in 2023. This trend will continue given the transformations of both businesses away from the traditional license business. We then have customer-managed subscriptions of EUR 183 million, which makes up 27% of our revenue base, up from 22%. Again, this is expected to continue to grow in importance for the group in the future as well. The EUR 183 million revenue included EUR 114 million of upfront recognitions under IFRS rules on customer-managed subscriptions. The third pocket then is owned managed subscriptions, which is EUR 47 million, 17% slightly up from 2023 where it was 16%. This will continue to grow in importance as well.
This is where, especially on the SBS side, the SaaS business will contribute to growth in the future. Traditional licenses made up 7%, down from 8%, about EUR 47 million in 2024. These four buckets of revenues together, we call product revenue, and that is 79% of our total revenue. So those are really software-related revenues stemming from selling or running our products for our customers. The remainder 21% is services revenues, about EUR 146 million in 2024, which is the activity that Éric has already explained on the SBS side and to a smaller extent on the Axway side. If we group maintenance and support, customer-managed subscriptions, and owned managed subscriptions, that is what we call recurring revenues because all of these revenues by nature are recurring the way we are contracting with the client, and that makes up 72% of our revenues, slightly up from 71% last year.
Below that, there is also the Axway and the SBS split, which I'll not comment on, only to say, as you can see from those splits, the business models of SBS and Axway are quite different in terms of contribution from the different revenue line items, but I think this was already mentioned in Éric's and Patrick's speeches. In terms of the product line breakdown, Éric already explained that on the SBS side, and on the Axway side, you are more or less familiar with the breakdown. The little arrows just denote whether product revenue's contribution to the overall revenue of SBS and Axway is going up or down. It doesn't necessarily mean that the revenue is shrinking, but the contribution in the portfolio is changing, or in other words, it grows below the average growth rate of the business or above the average growth rate of the business.
In terms of the regional breakdown, as you can see, France, which is our traditional home market on both businesses, is now below 30%. It's 28% in 2024, with the rest of Europe making up 14% in the U.K. and 19% in the rest of Europe. The U.S. gained in importance as well is now 22% of the pro forma revenue. And the rest of the revenue is mainly in Middle East Africa, coming from the SBS side, and Asia-Pacific coming from the Axway side. So the two markets that increased in importance in the last year are the U.K. and the U.S. And so whatever is in North America mostly is in the U.S.
In terms of our ARR disclosure, a couple of comments on methodology because true to our purpose as a portfolio company, we hold two different businesses and we have two different ways of or methodologies on ARR that are rooted in the way the business is set up and the business model. Éric already mentioned that the time from signature of a client to go-live of a client when the recurring revenue starts can be quite long on the SBS side. On the Axway side, that is very short, usually less than three months. On the SBS side, Éric mentioned up to 24 months. Therefore, when we look at the ARR for Axway, we do look at a prospective measure of all the signed contracts and what recurring revenue they will generate going into the future.
We do look ahead as the time between signature and revenue is very short. In terms of looking at SBS methodology, what we do is we look at the last monthly recurring revenue available and booked in our statements, i.e., recurring revenue is only recognized from go-live, and then we times that by 12. Therefore, we look at the last run rate of our recurring revenue and do not look ahead. The chart shows a little bridge to reconcile the recurring revenue shown in our P&L to the ARR. On the Axway side, as you can see, there is a gap between the two items stemming from about EUR 79 million effect because of the upfront recognition of customer-managed subscriptions.
That means it's about EUR 105 million of upfront recognized revenues in our 2024 statements, and that translates into ARR on an average duration of about four years of our products, and therefore the ARR is about EUR 26 million, so the difference is really the 105 minus the 26 million being EUR 79 million. The rest is increase from new business, go-lives, and churn and FX adjustments. On the SBS side, the same calculation is leading to an ARR number which is much closer to recurring revenue because, as Éric mentioned, SBS does not currently and not planned to have a lot of customer-managed subscriptions, and therefore the effect of the upfront recognition of customer-managed subscription revenue under IFRS is really small. It's about EUR 9 million in the P&L, translating into EUR 2.5 million of ARR.
In terms of margin on operating activities, we can see that the gross profit was largely flat. This is due to the product margin slightly down, which is driven by business mix, so SBS is a bigger percentage in 2024 than in 2023 and has a lower margin, and also SaaS is a higher share within SBS compared to 2023. The services margin is nicely up, driven by SBS, and on average, that gives us then a gross margin of 65%. The margin on operating activities is up by about 57 basis points from 13.1% to 13.6%, and that reflects good cost control on the operating expenses, which grew slower than revenue overall. R&D is slightly higher due to less capitalized R&D expenses and due to the investments, especially on the SBS side, into the incubation portfolio.
In terms of cash flow, I already mentioned the cash flow available that we are reporting is the cash flow for the last 12 months, Axway plus four months of SBS. We made an unlevered free cash flow of EUR 26.3 million in that period, a combination of an operating cash flow of EUR 31.7 million, and then investing and financing cash flow of minus EUR 313 million and plus EUR 305 million. This is mainly the effects of the capital raise and the acquisition of SBS. If we look at the SBS four-month contribution, we see a negative operating cash flow. And as I said before, the last four months of the year are not great in terms of cash collections on the SBS side. A lot of the revenue is collected in the first half of the year.
We estimate that on average, the change in working capital in SBS for the 12 months would have been flat, and the operating cash flow would have been between EUR 5 million and EUR 10 million positive. Having said that, if we look at the 12-month Axway standalone compared to 2023, we can see an improvement of the operating cash flow of EUR 7 million, which largely stems from a slight improvement on the negative change in net working capital as the transformation is coming to an end in terms of the business model transformation. In the next couple of years, we expect this to turn into a positive territory where the business will release some cash flow from net working capital. Finally, looking at the balance sheet, the movement on debt and the movement on cash is largely driven, of course, due to the transaction.
And then I already explained the operating cash flows that impact this as well. In terms of our leverage ratio, we ended the year at 2.87x and gearing ratio 0.47. As I mentioned already, comfortably meeting our bank covenants and allowing us to look at 2025 and also looking at further deleveraging in 2025 in order to continue the trend of reducing the leverage on the balance sheet. And with this, I would like to hand back to Patrick. Thank you very much.
Thank you, Tobias. Let me make some closing remarks and then talk about our ambitions for 2025 and going forward.
So as we talked about when we kicked this project off, we're really trying to build the software house mindset with the portfolio of products we have, not only to run each individual product and portfolio the way it should be run and the value that it should deliver to the customers, but to look for opportunities that we could optimize things like the centralized G&A or if we could leverage the portfolio to add value to different pieces of the portfolio. I know Tobias said in his speech that there is only EUR 1 million, roughly, of consolidated revenue coming out. That's where Axway was billing SBS and SBS was billing the final client. But we're looking for other opportunities where we could partner in the same account and add value at those accounts where Axway and SBS would both be contracting with the customer.
We have examples of that in 2024, and we've launched 2025 with already several opportunities closed or in the pipeline. So we're seeing a lot of good momentum of this software house mindset and trying to leverage the assets in the portfolio and then look where we could optimize and harmonize and use the scale effect of bringing the companies together to really accelerate our journey. And with that, we should be able to go back to what we present as guidance when we were going through the deal. And so for 2024, we gave a guidance of EUR 460 million. And as you saw, the four months of SBS and the 12 months of Axway, we delivered almost EUR 462 million of revenue with a 5.6% growth on a combined basis. That is with the more profitable growing part of SBS over the last four months.
Axway has the same profile, but we were very happy to hit that guidance. We had guided on the profit on operating activities between 13% and 17%. This one back in July when we were building this guidance was quite difficult to predict because the exact date of the carve-out and the closing of the transaction. A deal could fall on one side or the other. And so it made it difficult to predict, but we finished above the guidance at 19%. So we were quite pleased with how the combined first four months went. And I'll say I was even more pleased with how the teams were working together, how the just overall performance of the company and all the key metrics we were tracking was going in the right direction. As Toby mentioned, when we gave the guidance in the market, that was unlevered free cash flow.
That was what we were forecasting for the banks when we were getting the financing for the deal. We had guided on 4%, and we finished above at 5.7%. And we had disclosed that we'd have a leverage ratio above 2.5x. And on the road shows, we had said it should be between 2.5x and 3x, and it fell exactly in that range at 2.8x. So we were happy that the teams kept the focus and delivered 2024 while the transaction was happening. And I'm even happier the way that the teams worked together for 2025 in building the budget, finding the opportunities to work better together, and delivering the 2025 budget and expectations right in line with the guidance that we put in the market of EUR 700 million and roughly EUR 100 million of profit on operating activities are between 14% and 16%.
We're looking to improve the unlevered free cash flow to 10% for the year, which would allow us to deleverage a bit and come below at 2x leverage ratio. As we move into 2027, we're keeping our guidance conservative between 2% and 4%. That's because we want to make sure we do the right job to continue the transformation that Éric and team started as he discussed about 18 months ago and let them follow the path you saw that Axway has followed. And we don't want to get ahead of ourselves. We want to deliver year after year, and we want to allow the room to do that. But we're projecting to get to the 20% operating profit by about 2028 and put ourselves on a path to target EUR 1 billion in the midterm. And so we will do that while looking at building out a capital allocation model.
In Axway, we didn't really have much debt, and we didn't have to worry about this so much, and so we didn't have this down pat. Now we're looking at first on how we focus on deleveraging, pulling down some of the risk in the leverage ratio below 2x by the end of 2025. Then we'll start evaluating, do we return to dividends as early as 2026, or do we continue the share buyback program? That's all under evaluation at the board level. We'll continue to work on this as we go throughout the year. The first priority that's obvious, continue generating cash from the combined business and allowing us to delever at least to a more comfortable range. With that, that's the end of the presentation. Operator, will you open up the lines for questions and give guidance on how they could ask their questions?
Certainly. Thank you, Patrick. Ladies and gentlemen, as a reminder, to ask a question over the phone, please signal by pressing star one. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. You may also submit your questions on the webcast platform, and we have a question from Hugo. Apologies.
Yep, Sergey, I had a few questions queue up on the webcast platform, so I'll go ahead and take those, and then we'll get to Hugo on the line. The first question that came in was from Jérémie at H.C. Capital, congratulating us on the deal and the team on the work delivered. I completely agree, and maybe I didn't say it during our presentations. I'll continue to thank the teams for the hard work they delivered.
The carve-out was a Herculean effort by the team to make that happen, to get through standalone carved-out audits and to allow us to get the prospectus built and the year closed and the financial information that you have in front of you going deeper into our business. So the teams did a great job there and also in running the business for us to hit the ground running for the first four months. Your first question, though, is on the guidance for 2025, and calling out that implies a very low organic growth of 1.4% at the EUR 700 million. At the time of the rights offering, we guided at EUR 700 million. That was with a different foreign currency conversion rate as one of the effects. The U.S. dollar continues to get stronger, which allows our U.S. business to strengthen higher in euros and a few other different effects.
But you're right on just a 6.9 of 700, that's 1.4%. But the guidance is really towards the 2% to 4% organic. We can't control always the currency rates or certain other elements, but the real guidance is trying to hit that 2% to 4% organic year after year. And then the pipeline on both Axway and SBS, from what we see, is built to allow us to hit that. We should come out of the gate quite strong the first half. And the pipeline for our first half looks really good at this point, and we're doing what we always do. First half is now being worked just in the sales cycle to close the deals, but the second half pipeline is being built as we go. It's a little different when you talk about revenue.
On the Axway side, we have to close more business in the year to generate the revenue growth expected. On the SBS side, a lot of their revenue growth, as Éric highlighted, was already booked in prior years, and now it's a delivery year, as Éric highlighted. I don't know if you want to say a word on the delivery focus on the different opportunities.
Yeah, of course, as you said, Patrick, a large part of our 2025 plan has been managed by closing the deals, especially in H2 2024. So meaning that we need to continue to prepare the future, and the sales focus will continue on the same, but as said also, we need to continue to provide the proof and to secure that our client base is going to follow our strategy, so meaning that on a very short-term basis, the delivery is going to be very critical.
So we're on track, but it's a monthly focus at the moment because that proof has to be delivered.
Jérémie also had a question on the cash generation. Two questions, actually, there. And I'll let Toby answer one now and take the other. So the first part was SBS was negative. Can you comment on the 12 months of cash generation for SBS, especially in working capital? And is there seasonality, or is it due to cloud migration? And the second was on the Axway side. So the working capital remained negative at Axway. Do you expect it to be around zero or negative for 2025? So I'll take that second part as it's Axway. And we had guided and forecasted the working capital and the free cash flow of the Axway business. On the free cash flow, we hit about 6% of revenue in 2024 or 2023.
In 2024, we were forecasting about 12%. We were slightly below that, I think around 11%, 11.2%. We had some timing issues in collections, and we got a little aggressive on the forecasting. But the cash is there collected. If you remember the charts we showed on the Axway side, we were expecting that 12% to start getting somewhere at 16%, 17%, 18% range. So I don't expect in 2025 the working capital requirement to go positive, and I'm not sure it ever will, as we may always have a little gap, but it should get closer and closer to zero. We'll always see that the free cash flow at Axway, when it completes that subscription journey of the customer managed, it will get right below and always trail the profit on operating activities by a few points. And that way, the working capital requirement will stay slightly negative.
But we still have a journey, another year, year and a half to work through the upfront payments to waterfall, as we talked about in the past. And so maybe on the SBS side, Toby, you could answer in words.
Yeah, maybe I can reinforce the comments I already made. The last four months on the SBS side are not great from a cash collections perspective. Most of the cash collected comes in the first half of the year from the maintenance, the existing maintenance contracts that are all billed in, let's say, December, January, and then collected between February and April.
The estimate that we made for the 12 months cash flow on a post-carve-out basis, as I said, it's an estimate, is that we did not have a change in working capital, a significant change in working capital, and that our operating cash flow would have been between EUR 5 million and 10 million positive. So compared to what you see on the page, about, yeah, EUR 15 million to 20 million better.
Okay, the next question from Derek at Bernstein. And Éric, I believe this one's for you. To go a little deeper in why the time between bookings and revenue recognition is not like what we see at Axway about, or actually, that's wrong. At Axway, we see about six-month pipeline cycle of start to close. But why it's not like six to nine months versus the 18 months to 24 months you mentioned?
Yeah, to give a simple example, the major part of our recurring revenue is linked to the product called core banking. So when we move to subscription and on an operated-by-us approach, this could take nine months, 12 months to put it in place and to secure that all the connection, all the integration with the rest of the ecosystem of the bank is going to be running. We have even some cases where this is going to take two years. So it's the expectation from the client, but also we cannot run it faster because the work is a huge work. So meaning that during that period, we start to build infrastructure capability on the area, but we are talking about less than 5% of the yearly bill we should be building in the future. And of course, we are doing only services during that period.
So if we are tracking the area, the services are not at all important to drive our future. So meaning that we did sign, I was talking about the EUR 30 million account bank in the U.K. It has been closed in H2. We know that the first recurring revenue by opening the service is going to come only at the end of H2 2027. So that means that during that period, we know that we're going to cover our costs and our cash flow, by the way, but we are not going to generate any product revenue during that period.
Derek had another question, which is a quick one for you, Tobias. When we book customer-managed subscriptions, what is the amount of the proportion of the upfront revenue of the contract?
It really depends on the duration of the contract, but on average, it's around 50% based on our average duration of the contracts.
And Sergey, you mentioned we had a few call-in questions. I believe Hugo was the first one.
We had Hugo, but he has stepped away.
Okay
Thank you.
Okay, I have a few more that came in on the chat. Derek asked a question that I had mentioned it, but you could say a few words, Éric, on the pipeline and how does it look for as we start 2025?
We are quite confident looking at the current pipeline for our signature in H1. If I compare with H1 last year, even if the comparison is not easy with the disruption on the market, so we are slightly above, which is not showing disruption from the financial services market looking at their appetite to continue to invest for banking products. So I should say for H1, it's quite clear. And as you said, Patrick, H2 is going to be built during this semester to have a good closing in H2. But we do not see an early sign or early warning sign showing that activity is going to reduce. So we are still confident today looking at the pipeline.
And then Jérémie from HC Capital had some follow-up questions. How much was and this would be for Tobias? How much was the IFRS cash cost? I'm not sure I follow that.
The IFRS cash cost of what?
Let's assume it's on the debt. What's our average cost of debt?
Okay. So on our debt, we have an average cost of just above 5% at the moment. When you look at the pro forma figures on 2024, the cost of financial debt is on a full-year basis on the amount of debt we had in September. And as we deleverage, that will go down slightly.
And is that flowing through financing cost or investing cost?
Financing o n the cash flow.
Another question for Jérémie. How much was CapEx? Do you recall the CapEx side?
I don't have the number right in front of me for.
It would be the four months of SBS plus the full year of Axway. And Axway historically ran about EUR 4 million. I didn't see anything surprising, so.
I think it was close to EUR 10 million.
Yeah. Combined, maybe about close to EUR 10 million. From Derek again at Bernstein, when you did the budget for 2025, what are the main differences you noted between the way the two companies do the budgeting exercise? It's two different businesses, two different cycles of the journey. And even within Axway, I'll start by Axway, and then Éric could describe the process he ran in SBS. So over the years, we actually would do a bottom-up in Axway, and then I would come in with a top-down to close the budget. And we had always have that process. As we rolled out the GM model, and the GMs took more and more responsibility of their P&L, this year, the GMs collectively worked together and built the budget. We set some general guidance and parameters of what we thought the market would look like and the cost growth that we could absorb or the target set.
But the GMs collectively looked at the regions and the products and how they could achieve the revenue and then manage their cost within that constraint. So it was really a bottoms-up exercise with no top-down this year other than guidance on the Axway. And that just comes with the maturity of the GMs and the model that we built. So Axway got to that point for the 2024 budget. And how are you on that journey, Éric?
So first, I think for the first time, we did apply not the same discipline than the one we did apply in the past. So let me explain what does it mean for discipline. The first thing is we did not look at just expanding our business.
And we were quite clear with all the GMs that looking at adding revenue to hit a better budget from a profitability perspective was not at all an option. And I think this was a major change in the way to elaborate at that budget. And second, the GM did run and the way we did select each GM for each product during 2024 has been, I think, quite a strong experience for them, meaning that in parallel, at the beginning of H2, they were focusing a lot on the way to deliver H2 and on the way to enter into H1. So as a budget for 2025, with the same trends and having a stronger approach to drive cost base first and to consider that the cost base will be a better driver for them to secure that budget and then to see if the business will be accelerating.
This would be an upside and not like we did sometime in the past, which was we were running behind the business because our cost base was not fully aligned with our expectations. So these are the two new ways, I should say, we have put in place, which were the combination of the Axway discipline to make it very clear. And second, that GM model, which is making more not just a picture on the budget, but a clear movie for each GM, which have to drive their two to three years journey within looking at the product and the market.
So the next question comes from Pierre Lebeau of Petercam. Can you provide guidance on the operational margin variation for SBS in the next years? So I'm assuming it means result on operating profit and the guidance and the growth.
So you could back into it roughly the fact that you have the guidance that we've done collectively. And Axway's achieved 21%. And as I said before, it looks like it's plateauing somewhere that 21%, 20% to 22%, somewhere in that range, Axway's plateauing. And we got to evaluate how it will grow, but it's capping out at that range. And then SBS, for us to get to an overall 20% by the 2028 period, SBS is going to continue to stair step up to that 20%. So both businesses will be delivering by 2028 around the 20% model and will be progressively. It's not going to be a big shock next year. It's going to be step by step as the model works through, just like it did in the Axway story.
Derek from Bernstein asked a question on ARR growth in Axway for Q4 2024 compared to the nine-month figure of 2024. It slowed down. I don't have the figures in front of me.
I don't have the figures either.
We'll have to get back to you on that one, Derek. Operators, are there any further questions?
No, sir. There are currently no further questions over the phone.
Okay. With that, as we're running a little bit late, but I wanted to leave it open late because we had a little delay in starting. I want to thank you all for joining us. I'm really excited, as I've said many times in this presentation, that the team stayed focused and delivered the first four months together exactly as expected.
And we see that 2025 is falling right in line with where our expectations are, and we have every belief that we're going to deliver the figures forecasted over the several coming years. So thank you all for joining us, and we look forward to talking to you again shortly. Bye-bye.
Bye.