Good day, and thank you for standing by. Welcome to the SoftwareONE Half Year Results 2022 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone.
You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anna Engvall, Head of Investor Relations. Please go ahead.
Good morning, and thank you to everyone for joining SoftwareONE's H1 2022 results webcast. My name is Anna Engvall, Head of Investor Relations at SoftwareONE, and joining me today are Dieter Schlosser, our CEO, and Rodolfo Savitzky, CFO. Before handing over to Dieter, let me draw your attention to the usual disclaimer regarding forward-looking statements and non-IFRS measures on slide 2. With that, I will hand over to Dieter.
Good morning. I'm pleased to welcome everyone to our H1 2022 results. We had a strong first half of the year with our integrated model of software, cloud, and services continuing to deliver across all our markets. Gross profit for the group was up 16% year-on-year in constant currencies to CHF 470 million in H1. After a strong start to the year, Q2 was again very healthy with growth above 17%.
Both business lines contributed to this growth. This performance is a clear indication that we are well-positioned and are meeting the needs of our customers as they continue to prioritize cloud-first digital transformation and navigate today's challenges. Adjusted EBITDA was CHF 118 million, implying a margin above 25%.
This was driven by both gross profit growth and an increased focus on operational excellence and specific cost control measures that have been put in place since early this year. Our clear focus is on profitable growth, and adjusted EBITDA was up 13% in Q2, which is a very positive development. I also believe there is scope to do even better as we implement specific initiatives to optimize our cost base while we continue to grow.
Finally, with this set of results, we are fully on track to meeting our targets for the full year, which are mid-teens gross profit growth and an adjusted EBITDA margin above 25%. Before diving into the specifics by business line, I would like to put this result in the context of the overall macroeconomic environment and what we are seeing in terms of demand.
As emphasized before, the market opportunity in front of us is massive, a total addressable market of over CHF 600 billion. The software and cloud market is expected to grow at 14% and our addressable service market at over 30% per annum, at least until 2025. This outlook hasn't changed, and while we closely watch the environment, we continue to see demand develop in a very robust way with minimal delays in customer decision-making.
As also emphasized by industry experts, during these challenging times, organizations will prioritize certain IT investments to accelerate their digital transformation and increase efficiency. As pointed out by Satya, the cloud will be beneficiary given the flexibility that it offers. Now let's look at our results from a regional perspective. They are strong across the board. Again, solid double-digit growth in all four regions.
Our growth markets, LATAM and APAC, are now also at scale with CHF 100 million+ gross profits run rate. EMEA delivered a strong performance led by services. NORAM posted excellent growth with impressive results with Microsoft. APAC was strong across both business lines with several key markets posting 25%+ growth rates. LATAM delivered strong growth in Microsoft as well as services driven by larger markets such as Brazil and Colombia.
We believe our global business model with a presence in 90 markets is a powerful competitive differentiator for us in today's environment, where customers are demanding more and more local delivery paired with global best practices. Driving into the performance of each of our two business lines, starting with Solutions and Services, which delivered 36.5% gross profit growth in H1 this year. Overall, the performance was broad-based across service lines, customers, and geographies.
Our service portfolio is fully geared towards our customer needs and pain points. In particular, xSimple, our pay-as-you-go offering for our SME customer base, continued to deliver a phenomenal level of growth of over 70% year-on-year based on Office 365 and AzureSimple combined.
As a result, we now support 7.7 million managed cloud users, up from 6.9 million six months ago and from 1.7 million at the time of our IPO. This is clear evidence of how we want to drive scalability in the business and create stickier revenue streams. I would also like to highlight our cloud services, in particular Azure, which is up 43% year-on-year due to accelerating demand from our customers.
As well as AWS and Google, where we have made great progress in building out our capabilities, supported by acquisitions such as HeleCloud and the strategic collaboration agreement signed with AWS earlier this year. Our cross-selling statistics, a key measure of the strength of our synergistic portfolio and customer relationship, continued to improve.
Cross profits from 16,400 customers purchasing both software and services increased to 73%, up from 67% a year ago. A key development for this reporting period is, of course, the disclosure of profitability by business line. Today, Solutions and Services is breakeven at the adjusted EBITDA level, and we see significant upside here as the business has achieved critical mass, leading to SG&A growing below gross profit in the future. Now turning to Software and Cloud. Gross profit grew nearly 5% in H1 2022 to CHF 275 million.
In Q1, we reported 1% growth on the back of a high comparative quarter last year, while in Q2, the growth rate was 8%. Total Microsoft billing reached CHF 9.6 billion in H1 2022, growing in line with the overall Microsoft market. Momentum was positive across all customer segments, also public SME showed lower growth in Q2. We also continued to see strong momentum in our ISC portfolio on the back of PyraCloud, Goldpath adoption, and demand for the digital supply chain. As for margin, you will see that software and cloud is currently at over 50% adjusted EBITDA margin, stable compared to prior year and at the high end for the sector. Moving on to the most critical part of our business, that is our people.
Over the past six months, we continued to expand our talent base, hiring over 1,000 people globally, bringing our current workforce to around 9,000. This illustrates our continued ability to attract talent, even in a very challenging market where qualified people are scarce. Attracting talent is not something we take for granted.
To remain an employer of choice, we continuously invest in employee certification, as well as specific learning and development initiatives to upskill employees and offer them more structured career path. Culture, values, and purpose also play critical roles, and all this happens often one. We take every opportunity to bring our people together for community services and to celebrate key moments. We also prioritize staying close to them, listening to their opinions on a daily basis, as well as through our annual employee surveys.
A few key examples include our hugely successful Ukraine collection, Pride Month, Green Month, Women's Day, and our monthly cultural days. Lastly, I also want to highlight the progress that we are making on SoftwareONE Academy. The academy is an important initiative where we combine business and purpose by bringing in people from all walks of life into a career in technology.
We now have more than 200 apprentices across 11 countries, and we are seeing great progress with transitioning these learners into our teams at SoftwareONE. Last, but certainly not least, I would like to give an update on where we stand in terms of our ESG journey. As planned, we have now conducted an in-depth stakeholder analysis and materiality assessment to identify the priorities and pillars of our sustainability framework.
These areas relate to specific sustainable development goals adopted by the United Nations, which you see on slide 10. Firstly, we intend to take steps to further reduce our CO2 emissions, as well as support our customers with their sustainability journeys. We do this by enabling their digital transformations to the cloud, which results in less energy used and emissions compared to on-premise environments, particularly data centers are run on renewable energy.
Our collaboration with RIB Software on MTWO is a great example of how we can make a difference in the construction industry, a sector which today has the highest carbon footprint. In addition, we will prioritize fostering an environment which promotes diversity and equal opportunity, and continue to work with nonprofit industry customers through One Impact, as well as build on our already best-in-class ethics and compliance organization.
As a next step, we are working with our board and subject matter experts to develop specific ambitions and set competitive targets. Importantly, our first sustainability report will be published in 2023. With that, I would like to hand over to Rodolfo to take you through our financial performance in the first half.
Thank you, Dieter. A warm welcome from my side as well. As Dieter already mentioned, our results are strong, with gross profit growth of 16% on a constant currency basis in an adjusted EBITDA margin above 25%. The margin reflects both the growth momentum and cost control measures in place since early this year. While our operating expenses increased by 18% versus prior year, the sequential growth has been limited for two quarters in a row now.
Our revenue and gross profit were impacted by forex headwinds of approximately 2.5 percentage points, mainly reflecting the strengthening of the Swiss franc against the euro. Nonetheless, our operating model provides a natural hedge with similar exposures at the revenue and OPEX levels, so the forex impact on adjusted EBITDA was minimal.
Slide thirteen provides the promised transparency by business line for you to better understand the dynamics of our business. As the table highlights, we have split our business into two business lines in corporate, with corporate including all central functions such as COO, CFO, and treasury. With this new reporting, we have also introduced a new alternative performance called contribution margin, which equals revenue less external and internal delivery costs.
Our current gross profit measure captures the difference between the revenue and the external delivery cost, mainly the cost of software and cloud licenses and outsourced costs for service delivery. While gross profit was well suited for a classical reseller business model, the new contribution margin measure is more appropriate now that solutions and services has reached scale.
Moving down the P&L, certain SG&A, such as dedicated marketing or commercial teams, are fully reflected in the respective business lines, while some shared resources are allocated based on percentage of contribution margin. In terms of margin, solutions and services moved from being loss-making in 2021 to breakeven in the first half of 2022 and was already at 7% in quarter two.
Its profitability will continue to increase over the coming quarters, although seasonality needs to be taken into account. As already mentioned by Dieter, our software and cloud margin is at the high end of the sector, which we see as being both healthy and sustainable. Moving on to the next slide. While our priority remains investing in growth and increasing our share of wallet with customers, we fully recognize the need to focus on operational excellence. The timing is right.
Over the past few years, the focus was on rapid growth. Now that our business has reached a meaningful scale, we need to make sure it operates efficiently. As already mentioned in quarter one, we have launched a wide-ranging efficiency program to ensure a best-in-class cost structure. This program aims to improve our commercial model, as well as optimize our operational delivery and right size key support functions such as finance and HR.
To provide a few examples, on the commercial side, we will take a more systematic approach to value-based customer segmentation and targeting, supported by key account management to maximize cross-selling of services to our software and cloud customers. By benchmarking our sales forces across countries, we will ensure optimal sizing according to business opportunity. In terms of delivery, our priority is to better leverage our network of global, regional, and local delivery centers.
We're also standardizing our service solutions to scale them out profitably. As for the support functions, we are accelerating the transition of transactional activities to shared service centers to leverage process standardization automation, as well as lower costs of offshore locations. Some of the initiatives are already underway, while other elements of the program are still being finalized.
We expect to have the full project blueprint, including productivity targets, by the end of this year, with benefits materially accruing from 2023. Now, let me take a minute to explain the dynamics around working capital for this period and how it is likely to play out until year end. Working capital has a disproportionately large effect on our results, as our software and cloud receivables and payables reflect gross billings to our customers and the corresponding license costs paid to our vendors.
Looking at the average days outstanding over the last 18 months, DSOs have been relatively stable, while DPOs have come down compared to H1 and H2 last year. This was related to timing of specific vendor payments in the period. It is very important to emphasize that we do not see any macro trends or changes in collection dynamics impacting our receivables.
Neither customer nor vendor payment terms have changed. As such, we expect the level of net working capital to reverse over the course of the second half of this year, in line with typical seasonality. We still ended the first half with a net cash position, and we expect it will be significantly higher again by year-end. I would like to remind you of our capital allocation strategy.
Our first priority is to support our operations and to drive organic growth. Regarding M&A, we have been executing a string-of-pearls strategy to enhance capabilities across our service lines, particularly SAP services and cloud services. We expect to continue to do so. Our dividend is very important. We will continue to pay out between 30% and 50% of adjusted net profit each year. Overall, we use our balanced capital allocation strategy to optimize returns.
As such, we will also look at using excess cash for share buybacks to make sure we remain capital efficient and maximize returns to shareholders. Moving on, I want to strongly reiterate our guidance for the year and for the midterm. We will deliver mid-teens% growth in 2022, and our adjusted EBITA margin for the year will be above 25%.
As already mentioned, we are targeting to pay a dividend 30%-50% of our adjusted profit for the year. The 2022 guidance is fully consistent with the midterm guidance. Let me now move to my final slide regarding changes to our report. As promised, we have already implemented the business line P&L and have introduced a new adjusted performance measure contribution margin to better capture the profit contribution after deducting from revenue both the internal and external delivery costs.
With the introduction of these metrics, gross profit becomes a less relevant measure for our business. Therefore, as of 2023, we will start guiding for growth based on revenue, and EBITA margin will be calculated as percentage of revenue and not gross profit. These KPIs are more in line with market practice. We will, of course, continue to provide visibility between old and new metrics to ensure full apples-to-apples comparison. Let me now hand over to Dieter for his closing remarks.
Thank you, Rodolfo. As we reach the end of our presentation, there are three messages that we would like you to take away today. Firstly, our H1 results confirm that we are fully on track to meet our 2022 guidance of mid-teens growth and an EBITDA margin of above 25%. Secondly, we remain fully committed to our growth strategy and investing in our people, supported by operational efficiencies to deliver profitable growth.
Thirdly, we are improving the level of transparency in our financial disclosure to provide an optimal understanding of our business model. This includes setting ESG targets and publishing our first sustainability report next year. Thank you. Now we will take your questions.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. Once again, please press star one and one if you would like to ask a question. We will take our first question. Please stand by. Your first question today comes from the line of Katinka de Kooper from JP Morgan. Please go ahead. Your line is open.
Good morning. Thank you for taking my questions. A couple for me, please. Just firstly, on the macro environment, given the uncertainty that we're seeing in the market, can you comment on the visibility you have into the remainder of the year? Then just to confirm, you were saying that you have not started to see any signs of sales cycles getting longer and decisions being postponed.
Secondly, on the margin, obviously, finally we have the divisional margins, and the growth is really being driven by solutions and services. What is your expectation for the second half for that division? Longer term, where do you expect that the margin could go? S imilarly for software and cloud, is that expectation there that the margin would stay broadly stable?
Finally, on the additional cost savings you've identified, can you just comment on the magnitude that you're expecting there? Thank you.
Thanks, Katinka. Let me answer the first two ones, and then I will hand over to Rodolfo. You're right on the macro environment. We have seen robust demand continuing. Our pipeline, our book of orders reflects this as well. We don't see currently any headwinds.
The reason is, as I alluded to in my presentation, our portfolio, which we are offering, is well suited now to the needs of the customers, particularly in the environment with uncertainty and where they need flexibility. Cloud is really the answer. Digital transformation is really the answer, and we are able to give this. I think you also mentioned sales cycle. Do we see a change over there?
We don't. But of course, you know, we have all these different sales cycles depending on the portfolio, which varies, but we don't see an overall trend which would go in a different direction. On the second point, which is the margin, thanks for acknowledging that. Yeah, we believe that the software and cloud margins are healthy and stable. They are at the top end of the industry and they are stable. We will not see deterioration on software and cloud margins. On solution and services, as you have seen, we are now profitable. In Q2, we also had 7% adjusted EBITDA.
There is a certain seasonality which Rodolfo has also mentioned, but overall, we see the trend absolutely going in the right direction. The reason for that is very simple, right? When you incubate services and you have to make a reputation and name in the market, in the first years, you always have higher overheads, you have higher SG&A. Now, since we have reached scale and since we have reached the critical mass, we can actually grow this limited growth on the OpEx side. In terms of targets, we would say our ambition would be to have an EBITDA margin of mid-teens% by 2025. That's how we see it currently. In terms of the cost savings, let me hand over to Rudolf.
Thanks, Viktor. On the magnitude of the cost, let me, before I get there, just remind ourselves a little bit of the context. The company, SoftwareONE, has invested behind scaling up over the past few years. This has been, in my view, absolutely the right strategy. We have reached, as you have seen with the solutions and services, a point where in general the company has reached the right critical mass. It's the time now to step back and not only continue to invest behind growth, which is the biggest value driver, but to also think about what is the most efficient operating model.
As mentioned during my presentation, we'll tackle areas like commercial excellence, the optimization of delivery of services, and also to an extent, software and cloud, and benchmarking of our support functions to again ensure we have best in class in terms of delivery but also efficiency. The advantage for a company like SoftwareONE with the guidance of growth rate in the mid-teens is that to right-size the company, you don't need to go into big restructuring programs. It's simply about making sure costs significantly grow below the GP or sales growth. You can right-size by maintaining a big lag or large lag between cost increases and sales growth. The KPIs, the magnitude we will communicate, as I said, with the year-end results.
We will finalize the blueprint in the second half of this year. Look, in terms of order of magnitude, what we can say is when a company approaches this new phase of really looking at efficiency across all the engines, it would be unlikely to. It would be disappointing not to achieve at least, let me call it, mid-single-digit level of savings of the cost.
Great. Thank you very much for the color.
Thank you. We will now take our next question. Please stand by. Your next question comes from the line of Ross Jobber from Citi. Please go ahead. Your line is open.
Good morning. Thank you very much. Two questions if I may. The first one is more clarification. You talked about your Microsoft business growing in line with the overall Microsoft market. Is that not a bit disappointing? Because my understanding was that you were more exposed to the higher growth parts of the Microsoft offering, or maybe that's just the language used in the release.
Maybe you're talking about the relevant Microsoft market. My second question is, obviously, we've talked about macro uncertainty. You still hired at quite a healthy clip in terms of new people in H1. What are you thinking about in terms of H2 and where you would like headcount to be at the end of the year? Thank you.
Yeah. Hi, Ross. Good to speak to you. On the second question on the macroeconomic side, from the hiring you have seen that we hired around 1,000 people in H1. You also remember we had that initiative which we shared with you, which we completed a couple of months ago, which was Transformance. There was, of course, also a replacement in terms of the wrong capabilities which we had in certain areas. For the second half of the year, we see a slower growth of hiring.
It also depends on how the current environment relates to what we have seen the first half year wage inflation as you all know as well. Recently in the last couple of weeks that dynamic has changed a bit and big technology companies have started not only to go on headcount freezes but also on restructuring and cutting of headcounts. That dynamic might give us a different opportunity to get the right skill set available in the market. We are carefully watching that space. On the first one, on the Microsoft dynamic, Rodolfo, you want to jump in? Yeah. Look, a couple of comments on the Microsoft.
We look at several metrics, of course, and here, you know, in many cases it's directional, right? Because we don't have access to the latest granular data neither from the Microsoft books. Let's say when we see overall Microsoft growth, our growth billings are pretty much in line. Within the portfolio, I think we, as Dieter mentioned in his presentation, we see a slight, you know, slowdown in the public SME compensated by accelerated growth in other areas.
Look, this is when we look at, of course, also the forecast, what we see across the regions, we continue to see very positive momentum in the second half, which have been confirmed by our operations around the world. I mean, the first weeks of the second half, we continue to see the same momentum. Overall, I would say there's always a bit of a rebalance in the portfolio, but growth in line with the Microsoft market. Thank you.
Thank you. We will take our next question. Please stand by. Your next question comes from the line of Alastair Nolan from Morgan Stanley. Please go ahead. Your line is open.
Great. Thanks for taking my question. Maybe just again on the macro. I think the release did call out some weakness on the SME sides. I wasn't exactly sure what that was referring to. It said public SMEs, so maybe you could just clarify what you're seeing on that side.
Then secondly, you flagged share buybacks as a possible capital allocation policy. Just wondering if there's more detail you can provide on how you're thinking about that and the framework there. Then just finally on the working capital outflow, I'm just trying to understand why it was so much larger in the first half, maybe some more detail around that, and in particular, what sort of improvement you're expecting in the second half. That'd be great. Thank you.
Hi, Alastair. Yeah, I take the SME question. Sorry if that didn't come clear across. That's the public sector of SME. As you know, the public sector ratio in SoftwareONE overall is around 15%. In the public sector, you also do have a split between enterprise segments, large segments, and the SME segment. Where we have seen a slower growth was exactly in the SME segment. For the cash allocation and the working capital, Rodolfo, you want to jump in?
Thanks, Dieter. Sure. Alastair, let me start with the share buyback. I mean, I already outlined it in the presentation. We have a clear prioritization, but obviously a share buyback is part of the options we are considering, and we have communicated that before, but we wanted to formalize it in this particular presentation. In terms of the way the cycle works here internally within SoftwareONE, we do our internal strategy update. This is a regular event every year, right? It doesn't mean at all we change the strategy. We simply look at our strategy and validate you know the key metrics, right? Growth, how much we expect to invest organically, what are some of the inorganic opportunities that we foresee.
I think a good timing for providing a more concrete update would be after we do an update on an internal strategic plan, and that happens typically in the fourth quarter. This would be towards year-end. Now let me go to your third question, the working capital. Again, let me step back here. When I look at the fundamentals of working capital, which are first the terms, customer payment terms, vendor payment terms, collection dynamics, nothing has changed fundamentally. You know, when you look at the monthly metrics, the averages are also quite stable. For example, when you look at DSOs, we have been hovering around 60.
It was more or less the position we had at the end of the first half, a little bit over that, three days. Then when it comes to the payables, which is what created the deviation here, in general, I would say when you look at monthly averages, the payables are around 70 days. Typically at call it half year and there's an optimization of payables. What we do is we really try to make sure that the bigger payments also the size of our different contracts has increased over time so that the bigger contracts, we really optimize the timing, of course, within the terms that we have been granted, but that we optimize.
In such a way to maximize the payable position. This didn't happen in June, but we are already seeing a reversal of that, and we expect that we will end the year with a working capital position in terms of DSOs, DPOs, very similar to the one we had at the end of last year. Therefore, the impact from net working capital for the year will be as minimal. The cash flow with the usual seasonality, the cash flow effect, will reverse in the second half.
Great. Thanks alot .
Thank you. Thank you. We will now take our next question. Please stand by. Your next question comes from the line of Knut Woller from Baader Bank. Please go ahead. Your line is open.
Yeah. Thank you. Two questions, actually. First one on the SME segment. You just cited slower spending in the public sector. You don't see any signs of SME spending slowdown outside of the public sector? Secondly, just trying to get together around your comments regarding the margins and your mid-term targets. You expect a stable margin in software and cloud, and you expect mid-teens margins in solutions and services. Looking at your above 25% confirmed adjusted EBITDA margin target, should we rather think about that to move somewhere in a range to 25%-30%? Or will there be any further investment in potentially limiting the upside you expect in the solutions and services margins? Thank you.
Hi, Knut. Thanks for the questions. Yeah. You're absolutely right. We don't see any customer segment at the moment slowing down in the second half of the year. Actually, we're cautiously positive on software and cloud. As you know, from a business model on solution and services, you know, the maturity of what will be booked now is basically already sold. Yeah, there's of course a very good visibility on this. In terms of margin, give us a breather, Knut. We said that we have a target of solution and services by 2025 to reach the 15%.
As of now, we stick with our guidance, 25% above 25% for the margin. You remember our discussion which we had in the beginning of the year, also after the Q1 presentation. That gives us the flexibility to react to market opportunities and capture opportunities in the right way and invest where the company needs to be to be successful in the future. For the current city environment, we wouldn't change our guidance on this.
Got it. Thank you.
Thanks, Knut.
Thank you. We will now take our next question. Please stand by. Your next question comes from the line of Andreas Müller, ZKB. Please go ahead. Your line is open.
Yes. Thank you very much for taking my questions. I ask one on the solution and service market that grows certainly this year above the 30%. How do you see the momentum going into 2023, given that you have a good visibility already? Maybe you see there you have also a visibility into 2023. How dependent is this growth also from acquisition? That's the first question.
Yeah. Thanks, Andreas. Yeah, let me elaborate on this from two angles. The first would be on acquisitions. You know that our strategy at the moment is to really do bolt-on acquisitions. That means we add capabilities which you can also classify as talent acquisition. In other words, 20 people to 150 people in that range, right? So it's not something which has a huge impact in terms of our cost structure. In terms of the long-term growth, you remember we always said we are growing either aligned or above the market when it comes to solutions and services. Yeah, I alluded to that.
The market is growing above 30%. 30%, actually 30%. We want to grow above 30%. You are absolutely right? The baseline has come now quite big. We are talking about a run rate business, which is going towards half a billion CHF in next year. That's of course when you continue with high growth, like 36%-40%, that's a different challenge than doing this on a lower baseline. For the time being, we are positive for 2023 as well. I think we will always high growth in this. Maybe there's some kind of a deceleration in the thirties around, but at the moment we haven't really cleared it out.
Okay, thanks. That's clear. Within Solutions and Services, I think you mentioned in the past that managed services is kind of the sweet spot you wanted to go in and professional services as sort of an entry ticket to bring in the client there. Can you give us a sense of the split between the two business lines and also the margin differential of the two?
Yeah. We don't disclose that, but you know, it varies as you know, right? Professional service varies dramatically. You can sell an advisory engagement with a gain share, which has a very high margin. You take a project just as an entry point to get to the managed service. You dilute the margin a bit to get the managed service, right? It's a big variance. We don't differentiate between both. For us, you know, the AR, the recurring revenue and the TCV of course is very much important on the managed service side. It's stickier and the relationship is completely different.
At the moment we are around 60%, on that. Initially we said, you know, we want to drive this as high as possible, but if you have incubated service lines, you will always start with professional services because you have to make a name for yourself. I think that range of 60, you know, 65 is maybe an optimal range. Maybe maximum you can go up to 70, but I believe, you know, technology is always fast changing and you need to always bring some new things to the market, so you will not go beyond that.
Okay, thanks. Last one, if I may. Can you give us an update on the pilot you're on in North America on the new technology platform? When is it ready to be rolled out globally?
Yeah. That's a good point. Our Goldpath platform, which we piloted with the marketplace function in North America, is going according to plan. We expanded it to Canada. We are now in the second half of the year, bringing it further to English-speaking countries. From next year onwards, we are going beyond. We are very hopeful on this that by the end of the year, so when we bring our results in February next year to you, that we can give you concrete numbers on how the commercial model behind Goldpath looks like.
At the moment we are cautious on this because, you know, we want to have the proof point. We believe this can be highly disruptive, not only for the software supply chain, but also in the way we get customer attraction and customer attainment. We want to share the proof point with you and not simply a strategy.
Okay. Thank you very much.
Thank you once again. As a reminder, if you would like to ask a question, please press star one and one on your telephone keypad. We will now take our next question. Please stand by. Your question comes from the line of Michael Briest, UBS. Please go ahead. Your line is open.
Yes. Thank you. Good morning. Just coming back on head count. I think in the half you added 180 people net, and I know the Predica acquisition was quite sizable by your standards, CHF 80 million. Can you talk about how many people that brought and organic head count growth and attrition? Obviously, you're saying that things may be getting easier now, but was attrition an issue in H1? Secondly, on the exceptional costs of CHF 24 million, could you break that down a bit more between M&A and restructuring and also what you expect for the second half?
Finally, Dieter, just coming back on the services margin, I think, you know, at the capital markets there you were highlighting companies at 20%+ EBITDA margins as being a benchmark you aspire to, and that's obviously after central cost. The mid-teens margin seems a bit low to me. Can you maybe talk about whether there's something holding that back in the next couple of years? Whether you think longer term it could be over 20% perhaps? Thank you.
Yeah. Hi, Michael. Good to see you. To talk to you, see you later. On the three questions, let me bring the head count, let me bring the margin and then I refer to Rodolfo. So yeah, you're absolutely right. We had of course an impact in terms of attrition in the first half of the year because of our Transformance program, which was absolutely what we committed and what was also needed in the space. Predica, what you referred to, was around 300 people, which we brought on in that period of time. We watched the space very carefully for H2.
We really do selective hiring and selective OpEx increase to make sure that we get the growth before we bring the OpEx. That's you won't see dramatic variances in that segment. On the margin, I was waiting for you to ask this question. You know, if you look at the pure service players, right? The pure service players, not the symbiotic and synergistic business model, which we bring to the table as a real competitive differentiator. They have margins which range, as you know, from 5% to 30%+, but the majority is in the 10%-20% range, depending on which one you look at.
Outliers like TCS with this 27%, and then you might have here and there a digital service provider who has cracked the code above 30%. We believe that, you know, we in the ramp-up period, the 15% adjusted EBITDA margin is a good target to have by 2025. We shared with you that we also have adjusted the delivery model.
We go what we call XDCs, regional delivery centers, to make sure that we bring all our delivery capabilities closer to the customers, closer to the time zone, closer also to the trend which we see from a geopolitical side as well. That offers further opportunity. Of course, we also have automation in our program, which offers also further opportunities. We want to be conservative on this, and we believe this is a good target for us right now.
Now, Rodolfo.
Yes. Michael, on the call it adjustments which you referenced. Before I get there, let me again reiterate a couple of points. One of the integral part of our business model is bolt-on acquisition, particularly in solutions and services, as Dieter said, mainly bring capability. This is related of course to talents. Therefore many of our bolt-ons have a kind of a mixed investment.
We have an upfront that we pay to the owners, to the sellers, and then there's an earn-out component to ensure attainment of business plan, to ensure very importantly retention, because at the end, critical we buy capabilities and the leaders of course need to ensure capabilities remain for several years.
When we look at the famous CHF 24 million which you referenced, the lion's share, as you can imagine, is earn-outs. There's a couple of chunky ones. Of course, we do not disclose by company, but then there's a lot of smaller ones, right? Then you have the typical M&A expenses associated with due diligence, legal costs and so forth, right? Transformance, as we said, right, the program ended up split between two years. We have CHF 8 million also spent out there. I would say the major adjustment was related to the closure of our Russian entity with CHF 35 million.
Okay. Thank you. Then Dieter, just, I mean, you obviously prepared this full interim statement before Salesforce reported last night. They're obviously guiding down and it's a company of very strong execution. Are you at all concerned or changing your hiring behaviors? What are you looking out for, which might be a sign that conditions are getting more difficult and that might lead you to change your expectations either for next year or for this year?
Yeah. As mentioned earlier, I know this. I saw this as also Snowflake, et cetera. From our angle, you know, we don't see a slowdown on the services side at all. There's actually you know, we are on capacity over there. O n the software and cloud side, we are also quite optimistic that this will continue. We don't see any slowdown either on this side. What we are looking at is of course, you know, in our key markets and in our key customer base, do we see a different trend compared to previous years, knowing that they're slightly skewed with COVID, right? From 2021 and 2020. That's one angle.
What we also look at is our renewal conversion ratio, which at the moment is also not declining. It's very stable. It was always very high, and it's very stable. You know that usually on software and cloud you have either three years contracts or and for some you have whatever one or two years contracts. Then most of them actually go into auto renewal.
T he bigger ones, they are renewed as per negotiation. But also over there from conversion ratio, we don't see any difference in at the moment. But this would be the indicators, right? If the portfolio mix on the services side would be different and if the renewal ratio on the software and cloud would be an indicator for us to see that there's a change. At the moment it looks positive.
Okay. That's helpful. Thanks so much.
Thank you. We will now take our next question. Please stand by. Your next question comes to the line of Christoph Grau from AWP. Please go ahead. Your line is open.
Hello. Thank you very much for taking my questions. You already answered most of them, but maybe you can help me to clarify some points on your program to increase your efficiency. I want to know why there's a need for further program if I got it right, you just finished one, this Transformance program in the beginning of this year. Did I get it right that you're expecting a mid-single digit saving of costs in this program? Can you further say something about possible job cuts maybe? Thank you.
Yeah, thanks, Christoph. Good speaking again. Rodolfo, do you want to allude on this?
Yeah. Let me again take it step by step, Christoph. I take one step back. As I said also in my remarks. If we look at the history, we have invested in SoftwareONE significantly behind growth, right? That meant, you know, hiring people, scaling up operations and so forth. Now, at this point, we have reached a certain critical mass.
You can see it in the solutions and services business. It's the opportunity to continue to invest behind growth, right? It's super important, but also to take a look at efficiency and also the capabilities of our group. These two things are very important. The first step happened, it was about making sure we have the right people in the right place, in the business, right? That was Transformance.
It was not a restructuring, it was not an efficiency program. It's just making sure we didn't keep the C players, so to speak, and that we keep the A players in the team, right? That one, that program is closed. Now, there's a second element. How can we operate more efficiently? This touches every engine of the company, commercial, finance, support functions, delivery operations.
Of course, during the years, the team has looked into productivity. As I said, the emphasis was 80% on investment behind growth, which was the right thing to do at the time. Now we need to step back and take a deeper look, how can we have the efficiency of a best-in-class company for our side? This is what we're trying to do.
Now, the restructuring part, we're in the very fortunate situation to be a company growing mid-teens. When you're growing at this level and take services, again, we're growing ahead of market around 30%. To right-size your cost structure, you do not need to do restructuring. You just need to make sure you slow down your cost increases, right?
That the delta between your growth and your cost increases is quite high. All in all, look, I think the timing is right to look into how do we become more efficient. This is not about restructuring but about operational excellence in different areas to have the best practices. In many areas we already have the best practices, but in others we need to improve.
Finally, look, I'm a little bit speculating here, right? What I said is based on my own experience, based on my colleagues. In general, when you're launching a program like this in terms of efficiency, the expectation is that you need to get somewhere in the mid-single digit savings, right? I mean, that would be the expectation.
Now, in many cases, this would be more of a cost avoidance, right? In the sense that we have been growing our cost structure in a certain way, and then we will not need to grow that much. That's an important point to keep in mind. Look, I think here we should just wait until the end of the year, then we will provide more concrete KPIs. I think in the meantime, the point we want to get across is now an important priority area for us.
Thank you very much.
Thank you. There are currently no further questions. I will hand the call back to yourself, Dieter, for closing remarks.
Maybe-
We have one addition to it, Christoph.
Yeah.
If you're still on the line.
Yeah. Christoph.
Oh, sorry. Christoph, if you can press star one and one again, then I can open your line again. I'm just opening his line again.
The clarification. Dieter briefly and I exchanged notes here. It's just when we say mid-single digit percentage, we mean percentage of the cost base. Again, let's say link it to what we talked about, restructuring and cost cuts. We say if costs were growing at a certain rate, right?
In a company like ours. I'm going to just make an example. If in the past we were growing 10%, right? If you can implement certain efficiency measures, the impact would be mid-single digit %. That means you grow your cost by 5% instead of 10%. Just to make it very clear. This of course is what I would call the ongoing level. Maybe in the first year you can achieve 3.5%. Instead of growing 10%, you grow 6.5%. It probably is worth the clarification. Again, we'll confirm numbers at the end of the year.
Yes. Thank you very much.
Thanks, Christoph.
Thank you. There are no further questions at this time. I will hand the call back to yourself, Dieter.
Yeah, thanks. Thanks to everyone listening to our H1 earnings results presentation. Thanks also for raising very good questions, and I'll speak to you individually, I guess, in the next two weeks. Thank you very much and have a great day. Bye.
Thank you. This concludes today's conference call. Thanks conference call. Thanks for participating. Speakers, please stand by.