Good day, thank you for standing by. Welcome to the SoftwareOne Full Year 2022 Results Conference Call. At this time, all participants are in listen- only mode. After the speaker presentation, there will be the question- and- answer session. To ask a question during the session, you will need to press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anna Engvall, Head of Investor Relations. Please go ahead.
Good morning, and thank you to everyone for joining SoftwareOne's full- year 2022 results. 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 two. With that, I will hand over to Dieter.
Good morning. I'm pleased to welcome everyone to our full- year 2022 results. 2022 was yet another year of achievements to be proud of. Firstly, we delivered a record year reaching CHF 1 billion in revenues for the first time. In addition, our service business hit a CHF 500 million revenue run- rate by Q4. Importantly, we are also ahead of schedule on our 2025 target of 15% adjusted EBITDA margin for services. We continue to attract talent reaching over 9,000 FTEs, and make great strides improving gender diversity at all levels, including at the Executive Board with the appointment of Julia Braun as Chief HR Officer. Lastly, I'm very proud of our successful re-brand, which reflects our transformation into a global software and cloud solutions provider, supporting clients over their entire cloud journeys. Moving on to the numbers.
Gross profits for the group was up 14% to CHF 914 million in 2022. Adjusted EBITDA was CHF 240 million with a margin of 25.6%, broadly stable compared to prior year. Looking at Q4, growth was 7% due to a weak December. We saw clients taking a more cautious approach to spending their budgets. This was particularly evident in EMEA, especially in our Microsoft business. On the demand side, we are seeing is that organizations continue to push forward this cloud-first digital transformation to drive agility and efficiencies. They want to move to the cloud, but in an optimized way with control over their spend from the beginning. We are in the best position to help them do so, being a leader in FinOps and application modernization.
At the same time, we are taking measures to accelerate our growth momentum and optimize our cost structure. Rodolfo will take you through these initiatives later in his presentation. On regional performance, all four regions are now at scale. Our growth markets generate revenue around or above CHF 100 million. Each region also delivered double-digit growth in the year. EMEA grew by nearly 13%, including the acquisition of Predica. In Q4, growth was 4% driven by weaker results in our Microsoft business as mentioned earlier. NORAM delivered a strong performance with gross profit up 15% and momentum continued into Q4. APAC delivered growth of nearly 14% in 2022. Q4 growth was driven by China as well as Australia and Hong Kong. Also for a smaller size today, we see that China has the potential to become a growth engine for the region.
LATAM grew by 12%. Q4 was impacted by slowdowns in key markets, Brazil and Colombia, due to political environment. In summary, it's great to see continued momentum across many of our key strategic and high growth markets, including NORAM and Asia- Pacific. Diving into our business lines, Software and Cloud Services delivered over 27% growth. Cloud Services, Application Services and SAP Services delivered high double-digit growth in the year. Growth in Q4 was impacted by a lower contribution from acquisitions. xSimples grew by 56% in 2022 and over 40% in Q4. As mentioned last year, growth in xSimples has come down from over 80% in 2021 as we are reaching the end of the shift to pay-as-you-go from existing multi-year agreements.
In terms of profitability, adjusted EBITDA margin was at 9.6% in Q4, up from 3.3% last year, driven by a very competitive contribution margin and operating leverage. This confirms that we are ahead of schedule in terms of meeting our 2025 adjusted EBITDA margin target of 15% of revenue. Turning to Software and Cloud Marketplace. Microsoft billing reached CHF 17 billion in 2022, growing at 13%, which translated into gross profit growth of nearly 6%. In Q4, Microsoft billing growth slowed to 2%. This was driven by weakness in EMEA, the public sector in particular, also the enterprise segment was also impacted. Meanwhile, other ISVs continue to show strong momentum, growing double digits through Q4. As for margin, you see that Marketplace was at a sector-leading level of 53% with a slight improvement over last year.
This is a testament to the scale and the high level of efficiency that we have reached in this business. Whilst we see some softness in growth in Q4 related to current environment, the drivers remain fundamentally robust, and we are confident in the long-term growth. Now let's look at some examples how, of how we win business by helping customers on their cloud journeys across our portfolio, across the hyperscalers, and across the regions. A U.S.-based global manufacturing company chose SoftwareOne to achieve operational efficiencies and reduce compliance risk with our ITAM and our DSC services. A large Asian insurer selected us to assess, to migrate, and centralize their IT estate more than over 800 workloads on AWS. Finally, we won a framework agreement for 10,000 universities and educational institutes across 42 European countries. On the right, you also see recognitions from some of our partners.
After signing a strategic collaboration agreement with AWS last year, we also achieved Premier Tier Services Partner status. We are one of a handful of their most strategic partners and have so far overachieved our commitments with them. We were also recognized by ServiceNow as Partner of the Year and Fresco for expanding the opportunity around ServiceNow in 2023. I would like to provide a short update on our sustainability journey. Our ESG strategy was created with a passion for our people, our communities, and our planet at its core. We want to build on the success of ongoing local initiatives to create a strategy and vision to be embedded across SoftwareOne's businesses. To that end, last year, we conducted an in-depth materiality assessment and developed five ambitions in alignment with specific sustainable development goals adopted by the United Nations.
In our ESG report, to be published in H2 this year, we will share our progress and 2030 targets in relation to each of these ambitions, including our carbon footprint and reduction measures. Finally, it's our people that deliver our technology solutions. That reason, we continued to invest in our talent base last year with some excellent results. We grew to over 9,000 FTEs worldwide with over 300 net new hires to capture the right talent and replace key customer-facing roles. As shared before, we look to different ways of closing the talent gap while also making a meaningful contribution to society. It was therefore great to have 300 academy apprentices transitioning to full-time hires over the year. We made progress in terms of improving gender diversity at all levels. Senior female leaders now represent 27%, up 5 percentage points compared to 2021.
We also developed our employees by supporting them in gaining certifications. Alone in Microsoft and AWS, more than 1,000 new certifications were achieved. In addition to ensuring that our employees are empowered, well-trained, and given the right career opportunities, we also want them to be properly incentivized. In 2022, we made certain key changes to compensation plans to increase growth and profitability. I would like to hand over to Rodolfo to take you through our financial performance in 2022 and Q4.
Thank you, Dieter. A warm welcome from my side as well. Let me summarize what I see as key achievements for 2022. We delivered on guidance, and we continued to scale Software and Cloud Services. We launched our operational excellence initiatives, which I will cover in more detail later on. We also maintained tight cost and working capital control. Finally, we continued to execute on our balanced capital allocation strategy with growth investments and bolt-on M&A, while also returning funds to our shareholders in the form of a proposed CHF 0.35 dividend for this year and a CHF 70 million share buyback. Let's move on to the numbers. I will refer to the new metrics which we will focus on in 2023: revenue, contribution margin, and EBITDA margin now as percentage of revenue.
Starting with the full- year results, revenue grew by 14% in line with gross profit. Contribution margin, the difference between revenue and internal and external delivery costs, increased by only 11% in constant currency due to the impact of business line mix. Finally, our SG&A expenses grew by 10%, mainly reflecting tight cost control, with quarterly costs flat since quarter four 2021. Adjusted EBITDA margin as a percentage of revenue was 23.8%, which is equivalent to 25.6% margin as a percentage of gross profit, fully in line with our guidance. As Dieter already mentioned, our business slowed down in December. Our customers took a more cautious approach to spend, particularly Microsoft in EMEA. Revenue growth was up nearly 8% in quarter four, with a high adjusted EBITDA margin of 28% of revenue in line with seasonality.
As a result of the strong Swiss francs, forex headwinds had a significant impact of approximately 4 percentage points on our revenue and gross profit growth. Given our natural hedge with similar exposures on OpEx, the forex impact on adjusted EBITDA was again minimal. The next slide shows the business line view. Services revenue grew 26% for the year, reaching a CHF 500 million run- rate by quarter four. The contribution margin in Services was 35.5% of revenue in 2022, comparing favorably to peers and up by half a percentage point versus prior year. SG&A grew at a materially lower rate than the top line, translating into an adjusted EBITDA margin of 2.9%.
The margin in Q4 was 7.8%, driven partially by seasonality, of course, we expect this to continue increasing over coming quarters towards our 15% target. In marketplace, we saw solid growth of 5.7%, a stable contribution margin, and a strong adjusted EBITDA margin of 53%, a level which we see as being both healthy and sustainable. We have now launched a wide-ranging program to embed operational excellence across our organization to optimize both growth and efficiency. This program will touch three key areas: commercial effectiveness, our service delivery model, and support functions such as HR and Finance. As indicated on the slide, the planned measures will have different degrees of impact on both growth and productivity. Let's start with commercial effectiveness. Here, the majority of the impact will be on growth.
Leveraging our data insights, we want to target the right customers with the right offerings to gain share of wallet. To achieve this, we need to optimize our mix of business development executives and account managers. We will also right- shore non-customer- facing roles to improve efficiency. On service delivery, we will capitalize on standardized high-volume offerings for SMEs to scale profitably. We've had great success with our xSi mples, which we will seek to further enhance and standardize globally. We're also already progressing towards a shoring mix for optimal utilization rates across local, regional, and global delivery centers. Finally, we will improve productivity across our support functions by transferring transactional activities to our shared service centers and leveraging functional center of excellence at global or regional levels. With these measures, we aim to reduce fragmentation of resources across country organizations and improve functional impact.
These initiatives will allow us to drive mid-teens revenue growth in the midterm, while generating annual cost savings of CHF 50 million. We plan to reinvest a maximum of 50% of the savings in strategic growth areas, while the other 50% or more will fall directly to our bottom line. Turning to phasing, we plan for 1/3 of, or CHF 50 million of the cost savings to materialize this year with the full run- rate of CHF 50 million already next year. We're moving fast in implementing the plan and expect to see progress in H1. We will communicate a restructuring provision in the region of CHF 25 million to be confirmed in quarter one. As part of enhancing our competitiveness, we will reinvest some of the operational excellence savings in five strategic areas.
We will invest in leveraging external and internal data to further enhance lead generation and conversion, as well as in improving account-based marketing to increase share of wallet. We're also using AI propensity models to predict buying behaviors to facilitate cross-sell and up-sell. We will continue to simplify and digitize our processes. We're also enhancing our training curricula to strengthen capabilities such as consultative solution selling, as well as remote delivery at scale. Finally, we will invest more in IP to improve both our high volume SME service offerings as well as our core service line end-to-end digital solutions. Working capital ended the year at a favorable negative position of CHF 158 million after factoring. This was driven by particularly effective working capital management in the second half, which reversed the first half negative outflows from it.
Our days sales outstanding have increased due to growth of consumption-based offerings, where customers are invoiced later compared to pre-paid enterprise agreements. Importantly, the overdue ratio has not changed. On accounts payable, we optimized our payment cycle and ended up with a similar days payable as in 2021. Our net cash development is sound. Operating net cash increased by around CHF 150 million, reflecting cash flow from operations, CapEx investments, mainly in our Goatpath platform, as well as increased long-term receivables. These are interest-bearing receivables related to multi-year contracts where customers have been extended, granted extended credit terms. In return, we earn a higher margin to finance these contracts.
On the non-operating outflows, we invested in two bolt-ons in our Services business line and paid out a dividend of CHF 51 million, equivalent to 46.5% of our 2021 adjusted profit for the year. Finally, the net cash development was significantly impacted by a decrease in value of our Crayon shareholding. All in all, we ended the year with a strong net cash position of CHF 451 million. Let me recap our capital allocation policy. Reinvesting growth will continue to be our number one priority. On the operational side, we will focus on executing our organic growth strategy, including the reinvestment opportunities I mentioned earlier. As for CapEx, our main investment is our Goatpath marketplace to capitalize on the digital reselling opportunity. We will also continue to do bolt-on M&A to add capabilities and build geographic presence.
Any potential acquisitions will be measured against high internal rates of return hurdles and benchmark transaction multiples. Finally, we will continue to return funds to shareholders in the form of attractive dividends. We will occasionally complement these with other forms of return, such as the share buyback already announced last year. I will close my section with the outlook and midterm guide. We continue to execute on a well-defined strategy in order to capitalize on our attractive addressable market. While we believe our customers will continue to prioritize digital transformation in the coming years, we remain cautious on 2023 given the uncertain economic environment.
Based on the new reporting methodology, with growth and margin based on revenue rather than gross profit, our 2023 outlook is double-digit revenue growth for the group in constant currency, adjusted EBITDA margin of 24%-25% of revenue, and a dividend payout ratio of 30%-50% of adjusted profit for the year. The improved adjusted EBITDA margin midpoint guidance reflects the positive impact of our operational excellence program. The midterm guidance has also been adjusted to reflect the full impact of this program, which together with operating leverage, fully offsets the negative business line mix impact. The guidance also reflects our commitment to the company's profitable growth strategy and enhanced returns to shareholders. Let me now hand over to Dieter for his closing remarks.
Before we end the presentation, I would like to leave you with four key takeaways. We operate in a large and attractive market with the cloud opportunity offering long-term sustainable growth. Secondly, technology doesn't deliver impact on its own. It's our people who deliver solutions that work. We have built a 9,000 strong expert team at SoftwareOne and will continue to invest in our talent base. Thirdly, we must also find ways to work smarter and reduce complexity in the organization. Finally, continuing to innovate is critical. We cannot stand still. We must continuously reimagine how the world buys, builds, and manages everything in the cloud. Thank you. We will now take your questions.
Thank you. As a reminder, to ask a question, you need to lowly press star one one on your telephone keypad and wait for a name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. This will take a few moments. We're going to take our first question. The first question comes to land of Kathinka de Kuyper from UBS. Your line is open. Please ask your question.
Hi. Thanks for taking my questions. A couple from me, please. First of all, on the macro, I think you mentioned that the weakness that you saw started in December. Can you comment on how the current trading in January and February has evolved? Secondly, what gives you the confidence that you will get back to double-digit growth for the full year, especially with Microsoft and other vendors kind of seeing decelerations? How should we think of the growth between the two divisions of software and services? Finally, just a quick follow-up. Did you mention the restructuring expenses were CHF 25 million? Thank you.
Hi, Kathinka. Thank you for the questions. Yes, we mentioned the CHF 25 million as restructuring costs to start with the last question. On the first one, on the macro side, how we sell December and how we see January and pre Q1. October, November was absolutely strong and in line with our previous months and our previous quarters. We always said that our guidance will the landing on our guidance, whether it's on the lower or the mid or high- end of the guidance, will depend on this budget flush, which is the usual situation happening in December. We were cautious whether this year it would happen or not.
We have seen that budget flush just did not occur, and we don't see that as anything else than a more cautious approach from our customers to retain some spend for the 2022 year. In terms of trading for Q1, we are ramping up to the double digits growth that is also supported by a few changes, particular also on the Marketplace. We will be seeing a change in Microsoft, which will come in March, where they will remove the price lock, which they have initiated last year.
With that, we can accelerate on the Microsoft side to move the customers to that new commerce platform, which will accelerate the growth as well. That is one part of the answer also for the confidence on the second question. We see fundamentally and structurally no headwinds in the market. In fact, our ISV segment is very, very strong. Also in Q4 it was strong, and it's continuing to be strong in Q1. Also on the services side, our portfolio absolutely supports the current pain points of the customers, and we will continue to utilize that.
In terms of growth, between the two lines of businesses, we have said, you know, we always want to grow along with the market, on the Services side. Our growth is always between 20%-30%, which we intend on the Services side. On the Marketplace side, it is single-digit, mid-to-high single digits. You want to add something?
No, I think you covered everything, Dieter.
Thank you. Maybe a quick follow-up. How should we think of the seasonality between H1 and H2 this year?
Here we see a stronger second half compared to the first half. While we guide for the double-digit growth for the year, we do see a ramp up throughout the year.
Great. Thank you very much.
Thank you. Now we're going to take our next question. The next question comes the line of Knut Woller from Baader Bank. Your line is open. Please ask your question.
Yeah, thank you. Some aspects have already been touched, and you also touched already a bit on the price lock, Dieter. When I listened to conference calls of competitors of yours, they were saying, highlighting that particularly price increases on the software side should help in 2023. Can you share here some light also looking beyond the Microsoft price lock that you cited on your expectations to which extent price increases can be a tailwind helping you to grow in 2023? Also, on the xSimples side, what should we expect with you mentioning that it should be phasing out, that in terms of growth from xSimples in 2023? Thank you.
Hi, Knut. Yeah, absolutely clear. There is of course, there's a move after the price lock on Microsoft, which will accelerate post-March. Generally, we see across the board, we see price increases from most of the ISVs. As you know, we our margin is a percentage against this price or against a discounted price. Hence, we of course, when they increase the price, we would have to tailwind in the Marketplace as well. Secondly, in that space, you know, if you talk about price increase, it's always like we as a private person as well, right? If somebody increases the price, you want to assess whether there are other options.
For us that means, you know, we can help and we can support the customer to evaluate their entire cloud spend or the entire application on technology landscape. It's always a trigger point to also up-sell and cross-sell services. We love of course such a scenario. On the xSimples side, yes, after the price of that will slight increase again as well, of course. Yeah, we are hitting the end of our existing book of business. Remember we went from the old commercial model to the new commercial model and of course, once you go to the tail end of it is slowing down.
The xSimples as such, has such a success that we are of course now broadening the customer base and going instead of the farming rather to the net new hunting. That's what Rodolfo also mentioned in the presentation that we will reinvest into the xSimple s to further standardize them and grow and penetrate them.
Great. Thank you. Just some more color on the growth rate, if possible, Dieter, of xSimples. I think it should be substantially lower, but what kind of growth do you still expect from the farming momentum that you are expecting going into 2023?
Yeah, I would say it's, it will be around 30%-40% growth on the xSimples. You have seen, you know, one indicator on the xSimples, if you look at our numbers, you can always link it back to that, users which we are supporting. We have seen it's now 8.8 million users, where we have a 24 by seven support. We are reaching also over there now slowly to 10 million in the next 12-18 months, which is great. That will continue to grow. Overall on the services, you remember we always said we want to be with the market, which is 20%-30% on growth.
Thank you very much.
Thank you. Now we're going to take our next question. The next question comes to line of Andreas Müller from ZKB. Your line is open. Please ask your question.
Yes, good morning, gentlemen. Thanks for taking my question. I was wondering why with the Microsoft business there was such a huge difference between EMEA and the U.S., are we hear in other cycles? That's the first question. I was wondering, what do you expect for wage inflation this year and also the development of the FTE, can you stabilize bill OpEx also throughout the quarters this year? Last question is tax rate. What do you expect for next year or for this year, actually?
Tax rate, you said, Andreas?
Mm-hmm. Yep.
Okay. Let me take the first one, wage inflation and tax rate. I will hand over to Rodolfo. You know, from a customer segmentation, you look at, you look at the different geographies. We have the largest customers in EMEA. Then of course, you know, if you talk about bluebirds, which are basically the budget flush, then of course you would be also affected in EMEA. Plus we, our public sector is mainly focused on EMEA as well. That's the explanation on the Microsoft why it was geography differently. I hand over to Rodolfo on wage inflation and tax rate.
There was also the comment on FTEs. Maybe I tackle that as well. Andreas, thanks for the questions. Let me take one at a time. On the FTE front, right? With the operational excellence program, as I explained, it's a combination of growth and efficiency, right? To improve both effectiveness and productivity in the organization. As such, we are investing in certain areas. We were expecting to, in the sales side to, let's say, maintain slightly increased resources, but do more with the resources. Of course, in certain areas like finance, HR, where we will be shifting transactional activities to shared services, we expect reduction. All in all, we expect FTEs to remain stable, maybe a net increase, right? Small net increase like we saw this year.
On the tax rate, we basically expect a similar tax rate as we have seen in 2022.
Okay, thanks.
Thanks, Andreas.
Thank you. Now we're gonna take our next question. The next question comes to line of Ben Castillo-Bernaus from Exane BNP Paribas. Your line is open. Please ask your question.
Good morning. Thanks for taking my question. Just on the Cloud Solutions and Services business, growth slowed quite materially in Q4. Can you just remind us about how much of that segment is recurring in nature, and how much is kind of project- based one-off? What drove that slowdown? I guess, what did you see there? Was that the cutting of projects or was this sort of pushing out to a later date? Was this reducing scope of existing projects? Just help us come to that slowdown from Q3 and Q4, please. You commented on that Services segment. You're ahead of schedule in terms of your 2025 margin target. Can we get you to comment perhaps just on when you think that might become in reach, if it is slightly sooner than 2025? Thank you.
Hi, Ben. Thanks for the questions. On the growth on services which you rightfully saw in Q4. We have there are mainly three, there are three reasons towards it. First, of course, you know, there's always a knock-on effect if the Microsoft business is also slowing down, then there's up-selling, cross-selling, and knock-off effect. Second, we had some legacy services rolling off, which is also intentional to a certain extent. As, you know, we want to focus on our core Services business. Then towards the year- end, of course, you know, you can't really put those people on a different project.
Third, you saw that we haven't done really any acquisition in 2022 except in the beginning of the year, which was Predica. Of course, you compare to, you know, 2021 Q4, where we had actually two acquisitions with Centiq and HeleCloud. We don't see this as an as something which continues. It's an outlier for us. We see in the pipeline and the backdrop that a very stable growth for the upcoming quarters.
Now ahead of schedule and this is of course, you know, this is very exciting for us that we can share this with you, because, you know, we always believe that, you know, our strategy is the right one and it's also the right time for the strategy. You see now the proof points really being realized and the Q4 is an indication on the margin of the 9.6%, even though there is a certain seasonality, but the data point is absolutely going in that right direction. We believe we are ahead of schedule up to one year ahead of schedule on that 15% margin.
This is really, as I said, you know, it's an exciting situation for us because if you look at our exit- run rate of CHF 500 million revenue, right? If you look at our growth rate, then if you look at our target of 15% and achieving this earlier, you talk about a service business of CHF 100 million EBITDA in due time, right?
Great. Thank you very much.
Thanks, Ben.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. Dear speakers, there are no further questions at this time. I would like now to hand the conference over to our management team for any closing remarks.
Well, thank you for spending time with us today and, looking forward to meet you, individually of course over the next, couple of days and, looking forward to our conversations one-on-one. Thank you very much.
Thank you.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.