Good morning, everybody. This is Martin Möllmann of Adesso SE speaking. First of all, I'd like you to thank you for joining our Q1 earnings call regarding our quarterly statement we have published today. Adesso showed another quarter of strong growth with a 15% increase in sales to EUR 317.1 million. However, operating earnings were impacted by a calendar effect, with two less working days in the Q1 . As a result, cost increases had a greater impact on earnings, especially as these were not offset by the lack of sales on these two days and from weaker utilization at the beginning of the year. Hence, EBITDA remains flat at EUR 17.8 million.
Since outlook for full year 2024 remains positive, all remaining three quarters provide one more working day than in the previous year, and utilization is improving, guidance has been confirmed. I'd now like to welcome as well our CFO, Jörg Schroeder, who will give us a deeper insight into the figures of the Q1 and the outlook for the remainder of the current year. As always, I'd like you to mute yourself during his presentation. Feel free to open up the channels for the Q&A session afterwards. Participants on phones may want to mute or unmute their microphones via the star key, followed by the number six on their phones. Thank you so far, and Jörg, please go ahead.
Thank you, Martin, for the kind introduction, and thanks, everybody, for participating in today's earnings call for the Q1 of 2024. Let me start out with, as usual, the sales development. As you can see here, we improved, comparing the actual quarter of 2024 to the previous quarter, our sales or revenue by roughly 15%. The good news about that is that really most of that is or came by organic growth. So 14.5 percentage points is really in a tough market environment. We know that it's an unusual number, but for us, it's actually low, compared to the last couple of years, and we did that on purpose to have a little bit slower growth so that profitability comes back.
So far, we have only proved that the first part can be true, but we still work on the second part also. So far, we see 15% overall growth. 14.5% of that is organic growth, and this is pretty much in line also with the headcount growth, as you see here on this slide. If we look at the split up of the sales, so where did it come from? There's a mixed picture in the Q1 . So we'll start with the ones who have under par results, like insurance is pretty much the same value as last year, minus 1% year-over-year. The reason for that, we will come back later to that, is that in particular, the license sales came out flat in Q1 2024.
So on the whole solution business, we have a little bit of a problem, and that is, of course, highly reflected in the insurance business. The service business in itself is not looking so bad, actually. In manufacturing, we see the same result, basically -2% year-over-year. The reason for that is completely different. We have our largest customer comes from the manufacturing industry, and we are still working there, but it's not growing. So right now, it's pretty much saturated of what we do there for that customer, and there are a couple of other much smaller customers. But manufacturing still likes to have more other customers where we have significant impact and value and that we can grow from there. So manufacturing really has a sales issue that we are working on.
The third one, who is under par, is the public sector. You see only +7%. We actually thought that it could have been worse, because the public sector is pretty much reflected by the budget issues that the German government had due to a EUR 60 billion misused budget in the Corona times, and then they had to reallocate the whole budget. That took a couple of weeks and months, actually. The Q1 is pretty much reflected by that. It started as bad news in December already, and from there on, a lot of our teams could not work anymore in the public sector. If we look at order entries, public sectors are looking really good.
And if we also look at utilization, we see that from April onwards, the public sector will again look much better. But the Q1 was a reflection of that budget issues that we have. Yeah, and all the other sectors are pretty much in line. Banking is +18%, health +36%, a little bit inflated there, but still double-digit growth numbers. That is what we are aiming for. Automotive is back in the +17%. So last year, automotive was the one who had a little bit of a setback, but they are back in the game here with +17%. Retail, still +16%, and utilities is the big growth booster with +65%. And cross industries is everything else also, usually in line with the overall growth rate, and here we see +16%.
So, not really really bad news, but a mixed picture if you look at the industries in itself. If we look at the geographies, this is quite boring actually, to be honest, because we are still growing very fast in Germany. You see our year-over-year growth of 17%, so even faster than the whole group. 83% of our business so far at this point in time is done in Germany. Still, 95% is done in the German-speaking area, so not much of a shift there in terms of relations or proportions of sales. But you also see double-digit growth rates in a couple of other countries, like the Netherlands, like in Italy, for example. So we will continue on this path, but the broad picture doesn't change too much here.
Now we come to the downside of the Q1 , starting here with EBITDA, which, as Martin pointed out, is on the same level as last year. There's one less... no, actually, there are two less working days, which is a huge impact, of course. Martin also mentioned that all the other quarters will have one more working day, but the Q1 compared to 2023 is by far the worst. We also saw below average capacity utilization for our core business, but I will later show you that this didn't have a huge impact overall. The main factor here, besides the two calendar days that are missing, is the burdens that we see from investments in the IT solution business and the unprofitability of that solution business, as a whole.
So first, if we look at EBITDA margin, that comes down to 5.6%, which is not very good. It should be much higher. Of course, in a quarter where you have not so many working days, it's hard to achieve that, but 5.6% is actually a little bit below of what we expected, but still in guidance range, so that is why we still think we will come out in the guidance range. If we look at the key figures here, you see that personnel costs are a little bit inflated compared to the sales growth, although the personnel cost per FTE, which you see down here in the slide, is by plus 1%, so that's not too much. Utilization wasn't too great. License deals were bad compared to the previous year.
Daily rates, although, continue to develop nicely, we see an increase here year-over-year, and we still expect further increases in daily rates in the future. So starting from EBITDA, which is, pretty much at the same level as last year, and other factors continuing to grow, we come down at a negative pre-tax earnings, and we still have to pay taxes because there are non-deductible items included there. So the consolidated earnings come out as negative, as does earnings per share, then, of course. That is not what we are striving for, should be corrected at least in the H2 of the year. But so far, this is unfortunately the start in the year. So this is, I think, important to understand the nuances of the Q1 reporting.
This is the segment information that you also find in the Q1 report, and I will walk you through that, a little bit. If you look at the table, you see, our two segments that we report, IT services, which is our core business, our project-based business, and IT solutions, which is our product business. In the service business, in the core business, we made, external revenue, that is what is important here, of EUR 293 million, and an EBIT of EUR 12.28 million. And if you then, include the depreciation charges, the EBITDA margin would actually, just for that segment, without reconciliation, without consolidation, would come down to 8.6% EBITDA margin.
So that in itself is not super good, but then the two less working days are a high factor in every professional service business, which is what IT services is. In that regard, 8.6% EBITDA margin is not too bad, actually. Even though the utilization wasn't super great, this margin comes out okay. If we look at the solution business then, much less revenues. We see external revenue of just EUR 23 million and a negative EBIT of EUR 5 million. So that is what drags the overall results down. Although we had quite a nice development or an okay development, I would say, in the IT service business, the solution business ran out really bad. So that is what held Q1 back to reach at least a little bit better results here.
Okay, if we look at some financial KPIs, there's not too much to say here. We see that net working capital is staying flat compared to the Q1 figure of 23. That is, of course, good news, but you also have to keep in mind that we increased our factoring position over the year 2023 in the H2 of the year, and that is a huge factor. If you would exclude the additional factoring, then the net working capital would have increased, like, 10%-12%, around that or around that number, which still is below the growth rate of the revenues. Although if you look at-...
Return on capital figures, like return on net working capital, comes down to 9.6%, which I would consider a really bad number, and return on equity is negative, which is even worse. So we need to improve on that, of course, in the future. What turned out quite okay is the cash flow. On the left-hand side, you see the complete cash flow statement. You'll also find that in the report. Here, it's just for reference. What I would like to talk a little bit about is the right-hand side, the generation of what we consider free cash flow according to the IFRS Foundation definition of free cash flow, too. So that is operating cash flow minus CapEx, minus lease repayments, that comes down to free cash flow.
If we look at the quarters here, in the last year, operating cash flow was EUR -27 million. This year, we ar EUR -21 million, so that's a little bit better. Again, largely driven by, changes of net operating assets, net working capital, and increased factoring. The CapEx went down a little bit. CapEx for us is usually investments in our office locations and IT equipment. IT equipment continues to be a booster here, but we, yeah, went a little bit more on the conservative side in terms of new office locations because, yeah, these are, of course, a cost factor, a CapEx factor, and we wanted to decrease that a little bit, and that is already reflected here in Q1, so less CapEx.
Lease repayments, although grew, and that is largely driven by our new third building part of the headquarters in Dortmund, that we inhabit now since last year. And so these repayments increase. Although all this comes down to a free cash flow, last year, EUR -42.9, and this year, EUR -37.4, which is a little bit better, actually, or a little bit less worse, maybe you can say that. And if you look at actually a free cash flow for the last 12 months, that is what is reflected there in the blue rectangle. Free cash flow last 12 months per share is at EUR 3.02. And, that is actually, that number has increased over the last quarters and is actually now, yeah, increasing further with these figures of Q1.
So although the earnings are bad, free cash flow generation is okay. Of course, we still do have to improve on the profitability side, but, the rest of the year, this will be possible with more working days and improvements, hopefully, in the IT solutions part. So that comes or brings us down to the guidance for the whole year. We still see a strong market demand, otherwise, that organic growth of 14.5 percentage points would not be possible. We always, when we sat here, expect a double-digit sales growth. We still expect that. The Q1 is just the start, and we don't see any downswing, whatsoever. So for the rest of the year, we think this will continue. Yeah, margins expected to be better, in particular in the H2 of the year.
This is not new. This slide was already there when we put out the full year figures for 2023, so this is actually completely unchanged. So we knew that the H2 of the year would be the stronger one, which is usually the case. There are more working days, and we have more opportunities there, but so far we are in the Q1 . One more working day, of course, means for the whole year. In the Q1 , we had actually 2 less working days, and as Martin mentioned, all the next quarters will have exactly 1 day more than 2023. So this should then come as a benefit with an additional working day. Anyhow, overall, we think that the sales can be over EUR 1.25 billion.
We are pretty much on track there, and this will mean double-digit growth figures. The EBITDA should be between 110-130. We are still within our own, our own range here, although the Q1 was not perfect, to be completely honest here, too. And that is, then again, largely driven by the solution business that I just mentioned a couple of slides ago. So, yeah, this is the brief introduction to the Q1 figures, and now I would like to open for your questions.
Oh, thank you, Jörg. Do we have questions already? And just a small reminder, participants on phones may want to unmute their microphone by the star key, followed by the number six on their phones.
Hello, me.
Oh, Mr. Specht.
Yeah, hello. I could start, if the colleagues are still dialing in, with two or three questions, maybe make just two to open the room for the others as well. On the investments you mentioned that wrecked results in the Q1 , it should be mostly SG&A stuff. Can you shed some more light what in detail rose your investments here? And the second question on working capital, which was only flat year-on-year. You argued last year that you implemented several measures that help you to improve working capital and thus also a free cash flow.
Can you give us some more idea what will happen in the H2 of the year or the upcoming three quarters that makes you confident that working capital can be improved? And the last one, on IT solutions, which is definitely currently a problem child. Are there any larger RFPs circulating in the industry, or should we rather prepare for another weak year in the product business?
Yeah, thank you, Mr. Specht. These are the right kind of questions. So I will start with, because I think both of them, or two of your questions relate to, the IT solutions business. First, the investment side, and then the question of what can we expect from the market in terms of RFP and winning license deals. So on the investment side, actually not so much changed. That is also part of the story. We invested into our products all the years. I think we didn't have a spare year where we didn't do any investments. So that is what we usually do. We try to improve the products. We try to invest into new models to be attractive in the market, to have state-of-the-art software out there.
We are standing for software excellence, and so, we really look at the long term there and invest in future generations of software solutions. And that is usually perceived pretty well by the market, and it was always good when we had all this wins in license sales coming in? So, last year was a little bit of a setback already. I mean, we had license sales, but it was less than EUR 22, and so we won one big deal. And for this year, it pretty much looks the same as last year. So... And, there's also one structural change in the environment. First, right now, you don't sell a lot of life insurance modules anymore. The market is somewhat saturated, so nothing really too much to expect there.
And for the other ones, the newest one for us is the general or P&C, what it's called internationally. There, we still need to invest if we wanna stay competitive, at least. The competition is much more fierce than in health insurance and life insurance. And what we also see is more and more of a shift towards subscription-based business models. So we do have customers who are talking to us more about more SaaS deals than on-premise deals. And in the past, it was like pretty close to 100% as on-premise deals. So you have book a big license, and then you have an implementation project, and later on, you collect maintenance fees.
Now, the total contract value might be 10-15 years, is split up by 10-15 years, and you get a yearly fee as a subscription base. So that is what we see as a change in the market. For the long run, that's probably good. For the short run, it's not good, because we still have these investments going on, the sales activities going on, but we don't have this big license deals booster that help you in a single year. So there's a shift in the business model, and also the market is kind of tough, and I expect actually 2024 to stay a tough market for the solution business in general. So hopefully that gave you the answers for these two questions.
And then, you correctly pointed out that net working capital stayed flat, and we always talked about improvement of that. I firmly, or actually, you can see by the numbers that we see improvement already. After the SAP implementation or go live that we had last year in April, we first saw a lot of difficulties managing working capital, and so within the last year, we saw a huge increase of working capital. We were not able to get the invoices out properly. The receivables management lacked a little bit behind. That all was pretty much resolved in Q4. So invoices got out. Receivables management is actually much easier with SAP than the system we had before. So that is why we already saw a good development there, and this continues.
So if you look at a figure, for example, like just looking at net working capital per last 12-month sales, the number comes down to 17.1% right now, which is the best figure, I think, in, like, 10 years. So, it's already much better than in the last three, four, five years. Of course, we would like to continue even further, but I wouldn't make too much of a bet here. We still have to learn a lot, and I think we still have a lot of improvement left in the SAP system and in the receivables management, as well as in getting invoices out faster. But we are on the right way, and the strategic decision to work with a new system, I think, was completely correct.
Okay. Thanks a lot.
You're welcome.
Hi, it's Andreas.
Yeah. Hello, Mr. Wolf.
Maybe I may continue with my questions. Mine is also relating to the first one, relates to IT solutions. Mr. Schroeder, could you elaborate on whether it's bigger-
... solutions that you are developing here, for general insurance, or is it mainly add-on modules? Because my understanding is that Adesso is usually looking for key clients with whom Adesso develops main software components and is then trying to sell it to further clients. So that's kind of my first question. Then the second is related to the pricing environment that we see in IT services in general. Whether you see more price pressure now, as obviously, if you look at your competitors, they struggle to achieve the growth rates that Adesso has. And then, related to that is my last question: Who do you believe you are mainly taking market share from, given your strong top line development? Thank you.
Yeah, thank you, Mr. Wolf. I will start in that order. So, first, your question was to the solution business, and you are pretty much on spot there. We used to have a market approach, saying, "Okay, we don't take this multimillion pre-investments to develop a software and then try to sell it to the market," which is a very expensive approach, and if the market doesn't like your software, you have just wasted a lot of capital. So we usually have that approach to find a first customer, say, "Do you find that interesting? We develop it together. Of course, you get some kind of royalties, and then we might sell it somewhat together to the market." And that is how we always did it. That is how life insurance started, that is how health insurance started.
In the P&C market, that is more difficult, because there are... If you look at the German market, I'm still talking about the German market because that's a major market for us. Life insurance, and in particular, health insurance, are highly regulated, so it's pretty tough for a left field competitor to say, "Well, the healthcare market in Germany is so big, let's develop a product there," if you don't really understand the ins and outs of that market because it's so highly regulated. You cannot just come up with some kind of technology and say, "It has some use case, let's do that." No chance, yeah? So it doesn't work out. And that is why we have a very strong position there in life insurance and health insurance.
The general market is much more competitive, much easier or lower barriers to entry because it's not so highly regulated. And of course, all the insurance companies have some kind of system. Either it's developed by themselves, or they have a product by a competitor. And so you don't find a new customer saying, "Let's develop something together." That's much harder done in that field than in the other ones where we started out. So that is why a lot of these investments still stay with us. We thought it was still the right move to complete our whole sphere in the core insurance system world. But so far, we are on a little bit of a downswing here. So that is truth to be said. Second question was about pricing.
You're absolutely right. I mean, we see that competitors are also growing, but usually by acquisitions and not so much for organic growth. That is how we do it. Our prices continue to grow, and I think there are two powers working against each other. One is what you said: if competitors struggle a little bit, they might be more open to lower the prices to win more deals and grow again faster. We see that here and there. But on the other hand, there's also the cost structure, which is largely driven by personal expenses or personal cost. So that doesn't change. That is just industry development. We see a wage inflation there. That is happening. So if you wanna stay competitive, you have to actually increase your prices.
Otherwise, you might buy a project here and might buy a project there, but for the long term, you need to increase your prices, otherwise, your cost structure will ruin you. That is what is also happening, and the market is still a market where you need to find the best people for the projects. There's still a lot of opportunity for digitalization projects. I mean, the general topic of developing software and answer or finding answer for the question: How can digitalization and automation help my business model as a customer to improve and enhance in the future? That's still there, and that's still a hot topic, no matter what technology you're talking about.
Now, artificial intelligence is all over the place, and this is also true, but even with old-school software, there are still a lot of use cases with technology boosters that we have, like SAP, for example. The large boost that you saw there in the utility sector is largely driven by a lot of S/4HANA projects that we do in that sector in particular. So, the market demand is strong, and the prices will increase. But, of course, it's true that here and there, competitors try to buy project, and, that might actually be a reason why we only grew 14.5%, which for us is actually a low number. Last year, that was like, beyond 25%.
And, so we are not to use to such a low number, but still, again, we knew that 2024 would be tough, and we expect a double-digit growth rate, and so far, we succeeded on that part. And your third question was about the market share. So where do we get it from? I don't know completely, so I think it's a mixture, again, from customers who had their own software and tried to find something new, and outcarve certain projects, and of course, from competitors. And I cannot tell you which competitors are losing the most. That's probably much better answered by you than by ourselves. But generally looking, talking to our customers, looking at the market, how everything develops and unfolds, we are pretty certain that this growth rate will continue.
So that is what we are highly confident about. The real issues that we have is on the profitability side. That is what we need to come back to. That is also possible, but for us, it's the harder part, actually.
Great, thank you. One follow-up question, if I may. When do you believe the major parts of the IT solutions, new software solution will be developed? I mean, it will never be completed, that's clear, but when will you reach the major milestones? Thank you.
Yeah, that's a broad question because we actually do have solutions for pretty much everything. But what we see to stay competitive in the market, you of course need good price proposition for the customer, but you also need modern software. So, and that is also what we are standing for. So having modern software pretty much related to what the customer wants and so on. And nevertheless, I mean, we are at a point in time where the solution business is highly negative, and it will be a difficult year for the solution business. So we will make up our minds.
We will analyze that and discuss that first internally, and then look what we do with the solution business, because in the long run, first, it could be or could have much higher margin than the service business. Second, it's usually a good cross-selling opportunity. So if you have the products out there, or even if you have, just have a product, you are also perceived as someone who can do good projects. So that helps on the services side, which you don't see reflected in any number. But we might also discuss here and there, certain divestments or things where we discontinue operations. That's not at the agenda right now, but of course, we need to look how things unfold and develop in the future, and where we think is the most prospects.
Right now, this is in discussion at our place.
I was referring mainly to the P&C software, but that's... The answer would be the same, I guess.
Yeah, absolutely. I mean, we have sold modules in the P&C sector. It's not that we are completely new and have not one customer there. We have sold the car insurance policy module, for example, also for us, a larger customer. So, it's not that it's not happening. It's just not that it's not turning out good enough or not high enough to meet the expectation or bring back the investments that we already had, like it did usually in the past. So last year and this year is tougher in that environment.
Great, that's helpful. Thank you.
You're welcome.
I would like to read out some more questions from the chat that came from Mr. or Dr. Jakubowski from SMC Research. Could you give us some details on the profitability improving measures taking or planned for the solution segment, please? The next one is: What is the headcount growth plan for the year? And the third: Could you explain the low growth in Turkey, please?
Yeah. So for the solution business, that's actually we do have a business review with the solution business this week. Actually, at the end of the week. We will have a whole day. So maybe on a broader perspective, we saw that we will have issues with that segment already last year. So it was a difficult year, and we saw that we need to make some changes. We changed some, a little bit of the management team, so they are new managing directors running the business now.
Of course, they are doing that now for half a year or three quarters of a year, so they need a little bit of time to get into all the ins and outs of the business, and they need to come up with a plan to what to do about it. And at this point in time, it's actually a little bit too early. That was my... Also referring to my answer from before, what are we doing with the business? So of course, it cannot stay the way that we see it here reflected, highly unprofitable, huge investments and way too few revenues.
So the options are, really generally speaking, it could be much higher revenues, could be that we cut down on investments, could be divestments or discontinuing operations in certain type of products, and all of that could be. At this point in time, there is no definite answer to any of that, but we will look into that, and we will do that pretty soon, so that I can tell you.
For the second question, the headcount. The headcount growth, overall should be pretty much in line with the sales growth. So in the Q1 , we saw 15% sales growth, 17% headcount growth. And this will probably continue somewhat, although we are still on the brakes in terms of headcount recruiting.
So we are looking for, or much more for quality, much more for seniority, actually, and not to hire anybody who's crossing the street. We never did that, but we are even more, more looking for quality and seniority than in the past. So actually, that number could come down, a little bit. So I don't expect like 25% or more headcount growth. And for Turkey, yeah, why, why did, I will come back to the slide. It was a good observation, 'cause Turkey always for us, was a very good country. And here, just to get it straight, the revenue that you see here is just the domestic revenue of Turkey. So our Turkish customers within Turkey that get delivered by our operations teams, and that didn't grow in Turkey.
There are a couple of difficulties: hyperinflation, huge interest rates, the market, kind of tough. So overall, that business didn't grow so much. What you don't see reflected here is that our shoring business actually increases only in small steps. So we don't only shore from Turkey, we also shore from Bulgaria and Romania and India, and all of that is growing, and all of that is increasing. But you see that actually reflected here in Germany and Switzerland. That is where the main markets are for our shoring business. We also start now a little bit in U.K. So in the more mature Western European markets is where you see the shoring numbers reflected. And this is only domestic revenue in Turkey, and that wasn't a good quarter for Turkey. Yeah, so that's, that's the answer to that.
Do we have more questions at this point in time?
I would add one from my side. Hello, Wolfgang again from Bankhaus Lampe. What about M&A? Is the pipeline looking better than it did, let's say, end of Q1 last year, or has there anything changed?
Yeah, so M&A, it's not that the pipeline looks particularly bad, it's just that, when we look at the problems at hand, what do we have? It's not growth. It's not that we are not growing. I mean, we can live with 50% organic growth and be perfectly fine. The problems come from the profitability side, and also used to be on the cash flow side, you know? So we are now much better in terms of cash generation, but, if you have such a low profitability, it's not even enough to have high cash generation, because we need to get back in profitability, and we also don't like to over-leverage the balance sheet. It does look like being highly over-leveraged if we jump back to the financial KPIs here. But still, M&A deals would need financing.
It could come out of cash, it could come out of debt. At this point in time, we think we have bigger issues than looking for acquisitions for growth. First, we need to get profitability back on track, maybe deleverage a little bit, and then be faster on the M&A track again. But at this point in time, we are little bit more conservative because we have other issues that need to be resolved.
Thanks a lot.
I see there is another question from Hugo Ma. Hello, Hugo.
Can you please unmute your microphone via star key, followed by the number six?
Hugo Sprung, Tikus Capital. I would have a question, if I may, in the meantime.
Yeah, sure.
The questions are more quantitative, so can you quantify the effects of the two less working days in Q1 versus the previous year in terms of revenue and earnings?
Yeah. Actually, that's one of my favorite questions. I won't give you an exact figure, but I will give you the guidelines of how we try to answer that question for us internally. So, one working day is usually... So we have an operating workforce of a couple of thousand people in the service business, that can be utilized into projects. So we take that couple of thousand employees, times a normal utilization rate, let's say, at this point in time, roughly 80%. It's not spectacular, but it's pretty much normal value.... Times a usual daily rate, and we don't disclose that figure, but it's increasing year over year over year.
And so you might come up with a figure, and it really doesn't change so much whether it's EUR 50 higher or lower. And then no matter how you calculate that, you will come up with a couple of million EUR for each working day. That would be, ceteris paribus, just additional revenue and pretty much like 95% or maybe 90% of that also additional earnings. So that is why the number of working days is the most important factor determining whether a quarter will be good or bad. So we knew in advance that Q1 would be tough, because if you have two less working days, you can only work so much, and we cannot invent new working days unfortunately. That would be the biggest driver for earnings here, but that's not possible.
That is how we tackle that question. So, I hope I get you the principles of how we look at that.
Yeah. Okay. Then on license revenue, what was the number for Q1, and what was it the year before?
So for Q1, it was super low. Actually, Martin, do you know that? Last year, I think, was EUR 4 million.
Can you repeat the question, please? I was-
The question was, how much license sales were there last year in Q1 and this year in Q1. This year, I know it's pretty much-
Roughly EUR 2 million. Roughly EUR 2 million last year.
This year, 0.
Yeah.
Okay. And then you mentioned factoring in your presentation related to cash flow. So, can you quantify the positive effect due to increased factoring in Q1, and what is the absolute number, end of March you have used in terms of factoring?
Yeah. That is a good question. So, because it, it's important to understand where cash generation comes from, this might look too good if you don't include factoring here. Of course, in order to scale up factoring, we needed all that stuff, doing the SAP systems, and so on. Otherwise, we wouldn't be able to financing a little bit of working capital. And it's actually not that we wanna overdo it. We think it's a smart financing tool done on a smaller scale to finance the working capital thing. Just you understand how we look at that. In terms of numbers, the actual number was not changed to compared to Q4 of 2023. And that means roughly EUR 55 million. So we had a factoring volume of EUR 55 million at end of year 2023, and we have the same number in end of March.
Since we are comparing here Q1 2023 to Q1 2024, the difference is, I think, around EUR 25 million. Because we scaled factoring up in the last year in order to compensate for the bad working capital effects that we faced using SAP, and that pretty much was reflected in the H2 of the year. So if you compare now Q1 2023, the factoring volume would be around EUR 30 million, and at Q1 2024, around EUR 55 million. That is why if you include then an additional booster there of EUR 25 million and would include that in the working capital, you see that working capital or net working capital actually would increase by, I think, around 12% is the number. Which is still below the overall growth, but it's still an increase.
Okay, but it's not a net increase in Q1?
No, that's right.
If I get it right.
Yeah, that's, that's correct. That's correct.
Yeah. Yeah. Okay. Thanks. So we'll see each other tomorrow. Bye.
Yeah.
So I got the questions from Omar. He put it to the chat, and I will read it out loud: I don't see the rationale to maintain such a pace of recruitment at same level of sales growth for the whole year while you want to improve utilization. Do you make your mind in order to slow more headcount growth compared to revenue growth? Do you see already better utilization in Q2 compared to Q1? And the other is-
Yeah.
Yep. Given you expect margin improvement for the whole year in your guidance, do you see the chance for improvement in margin year-on-year already in Q2, given you will have one more working day?
Very good questions. Thank you, Hugo. So for the headcount growth, it's rather difficult, because the Adesso culture is really deeply rooted in the DNA that we wanna have profitable growth in the end. But first, to have that, you need growth, and for having organic growth, you need more people. So that's really deeply rooted in the culture, and the incentive systems and everything that relates to that. So for Adesso, it's actually tough to say, like we did last year, we have a brake on hirings. We have a temporary hiring freeze and so on. So that is really changing the culture quite a lot.
And we will have, we know that we will have this year in, I think it's in Q2 already, or late Q2, we will have months where we will, on a net basis, lose employees, which is, I think, never happened before in the Adesso story. So, it already feels like a huge slowdown for us. It's like maneuvering a really big ship already. I mean, we are over 10,000 people, and so we do have some measures in place where we try to get the huge ship on the right track. But it takes time, and we always have to look out not to overdo it. So if we would change the culture too much, then we wouldn't grow as all our competitors do, who are not organically growing.
So that is really, I would think, a competitive advantage of what Adesso does best. That is really the organic growth figure. So this is a tough topic. Of course, we know that we cannot hire 30% more employees and think we come back to profitably that easily. Doesn't happen now. So that is why we slowed down in the first place. But we are also looking at that not to overdo it, because the downside effects could be more severe than what we are trying to to resolve here. So that is why I think it will stay in line pretty much with the overall growth. In terms of utilization, yeah, I think the question was how it's developing and whether Q2 is already looking better than Q1. That is true.
That is not super, not a super achievement because in January, usually the utilization rates are always the worst. So that's the case every year. So January numbers are worse, and then it's usually continuing to improve from there, and that was the case also for this year in Q1. But we see an improvement in April already in terms of utilization rates. And what we also can have as a forecast for three employees for the next weeks, we see that utilization rates should even improve further from that. So that is on the right track. Even if you look at the Q1 , two less working days, 8.6% EBITDA margin just for the service business, that's not horrible.
Yeah, so overall, of course, this isn't great results, but the service business, even with a somewhat below par utilization rate, is doing okay. And you said, last question was referring to Q2, whether we would see a year-over-year improvement in terms of margin. Yeah, that will probably be the case, because the biggest answer to that you gave yourself is the one more working day. And, as Mr. Spang asked the question, "How would you calculate for that?" We would calculate for that exactly like that. So yeah, that will be a benefit in Q2, and we see utilization rates improve. What we will not have resolved in Q2 is the problems, all related about the solution business. This will take more time.
Okay. Do you have any more questions?
That does not seem to be the case. Thank you very much for your interest in our call today and your participation. I wish you all the best and hope to see you in person, maybe, on the spring conference tomorrow or anywhere else. For now, goodbye. Goodbye. Thank you.