TXT e solutions SpA
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Earnings Call Transcript

Earnings Call Transcript
2023-Q1

from 0
Operator

Good morning, everybody, and thank you, once again, as always, for joining us on this Friday morning. As we discussed the TXT Group's Q1 results of 2023. As always, we will have Daniele Misani, CEO of TXT Group, he advices me, and also Andrea Favini, Investor Relations joining us from our PACE office in Baden. [Operator Instructions]

Thank you very much. We might just waiting out a couple of minutes that allows a few people to join us before beginning the presentation [indiscernible].

D
Daniele Misani
executive

Thank you very much. Thank you, Brigid. Thank you everybody, that is connected. So while waiting for some people joining to the meeting. So I want to thank you. As you know, the shareholder meeting in April that selected also a new course with the new board. There was, let's say, the continuity in the top management. So yesterday, the new Board appointed Enrico Magni as Chairman. And again, me, for other 3 years after the first 3 years period, that was very good because brought value for all the people of the TXT group and, of course, for customer and, of course, for you as shareholders.

So we are very happy to continue. So our commitment is to continue with this growth accelerated debt and the first quarter results are in line, let's say, with the expectation that a strong and good expectations and also the results are very good. So I will start to have a vision of the numbers that were presented and approved yesterday by the Board.

And in terms of volumes of revenues, there is a good achievement. We closed the first quarter with EUR 52.3 million in growth of about 71% with respect to the same period last year. It's a strong growth that is coming from all the areas of the business that we have according to the segmentation that we always presented in the past. So divided by market, we have a growth in all industries. So the strong growth driven for the aerospace and aviation, industrial in general, is because we started to aggregate the data coming from Ennova in this division. But as already told in the past, we will start and we have started to provide a new segmentation that I will introduce later in order to understand better the business, not according to the industry, but according to the offering type.

In terms of profitability, also that is very important for us, we registered a very good growth also in this direction, so plus 52% with respect to same period of the last year. And we closed the first quarter at EUR 6.8 million. I tell you that, as you know, our business is also linked to seasonality. So first quarter in general is the slower one. So good results for the first quarter are a good first step for having good results in the overall year. So we are on the right track in order to continue to bring value.

As I told you, the complexity of the group is growing, is growing in terms of offering, is growing in terms of market reach and of course, industries that we serve. We are a technological company. So we are a digital enabler, and we are in the market of digital innovation that is not bounded to a single industry, but is open to the innovation in many fields, thanks to the technology.

So in order to reflect this approach, and is our market positioning, we decided and we are reorganizing the, let's say, the group according to offering type. So we have 3 main offering lines, digital advisory that is more related to process innovation. So the usage of technology in order to innovate customer processes, so the know how to transform processes by using the digital technology. And this, let's say, business is 13% of the overall -- this percentage is related to the numbers of the first quarter.

We have a strong competence in the area that is related to software engineering. This is our DNA. So TXT was born as a software engineering company. So we offer services to customers to transform their product, okay? This is the bigger revision instead of some number of people, and these are more or less 70% of the business itself. Together, digital advisory and software engineering are service businesses. So we provide services and intellectual property, most of the cases remain on customer. Instead, we want to give an edge with respect to competition because our value proposition is empowered by our portfolio of smart Solutions. So proprietary software that we use in order to accelerate the transformation of processes and customer products.

So the smart solution, let's say, unit is worth more or less 20% of the overall business. And this is the cluster of companies that are investing in proprietary technology, in proprietary software. So the R&D is mostly focused in this division. So these 3 areas will be the segmentation that we present to you in the next 3 years, and it's also a vision of our approach to the market. We are a digital enabler that can serve and offer solution to the customers end to end. So starting from the conceptualization, so advisory, engineering in order to implement, boosted by smart solutions that are vertical solution that accelerated the customer transformation.

If we look to the numbers according to this segmentation, we have a good performance and growth in all the areas also. So looking to the 3 segments, mass solutions, digital aviation and software engineers, software engineering is the bigger with volumes about 36.3%. And the smaller one for now is advisory because, for the advisory, we started to do this business starting from 2020, but it's a business strategic for us, and we are investing. We want to continue to grow.

In terms of profitability, this cluster are more, let's say, homogeneous with respect to the market vision that we had before. The target for the software engineering is above 10% in terms of EBITDA margin, and we closed with 12%. There is a slight decrease with respect to the past because the aggregation, the mix of digital companies and especially Ennova was the latest one introduced mix up with some areas in which our software engineering were more performance like the defense one. So the overall mix is 12%, but we are working with synergies and integrations in order to improve and to continue with good track on this topic.

In terms of marginality of digital advisory, we are improving. So we are growing in size, and we are growing also in marginality, and we closed 14%, more or less, for this division. Products are still -- especially because it's the first quarter of the year, in which there are less software deals, so the typical life cycle of selling license of software is more, let's say, stronger in the last part of the year with respect of the beginning of the year.

But having expanded also all the R&D expenses to produce our software, we still close with a clean 15% of EBITDA margin with EUR 1.4 million in EBITDA in this segment. So there is a strong contribution looking to the numbers of all the divisions that are growing well in either enough in revenues than in profitability.

In terms of other KPIs that are important to highlight to you, we have the performance related to the organic growth. So to the growth like-for-like perimeter, same perimeter of first quarter 2022, we registered a double-digit growth, so plus 11%, driven by all the segments. So strong double-digit growth in all the segments is a good result, and we want to push and continue in this direction. The contribution coming in terms of revenues or volumes of the new acquisitions. So the Ennova, SPS, DM, Tlogos and PGMD that were acquired in the second half of the last year is significant in terms of volume and is a plus EUR 18 million.

In terms of net profits, we have a very good result. EUR 2.9 Million. That is 6% of the revenue, so in line with our historical results, and these are strongly in growth in terms of absolute value with respect to the first quarter of 2022 of more than 40%. So very good value brought also for all the shareholders.

R&D is important. As I said before, for us, the smart solutions division is a strong value proposition that put us in front of competition in many fields with our vertical solution. We invested EUR 2.2 million in growth with respect to the same period over the last year, plus 16%. The revenues coming from this division is significant, so EUR 9.3 million, plus 77% with respect to the same period of the last year. More than the growth and the value that we bring with revenues from software for us, it's important to have this kind of offering because it's something that puts us ahead of competition in most of the cases. So it's an entry point of high value in front of large customer in order to offer them additional services. So to enable the synergies to sell digital advisory services or to sell software engineering services. So for us a strategic asset to propose to the market is smart solutions.

In terms of revenues, we have EUR 10 million coming from international revenues. In terms of percentage, let's say, with respect to the past, we have less let's say, percentage from outside the domestic market, the Italian market. It's 20% respect to the total. This is because the mix of the company, especially because most of -- and the more -- the bigger company we acquired and integrated last year are mainly focused on the domestic market. But for us, still the international presence is, let's say, a must, and we are working also to continue to invest and to expand the presence outside from Italy.

In terms of debt, we have a very strong result in the first quarter due mainly from the tradable payables that are being closed and paid in the first quarter. So our net debt, not adjusted, is EUR 25 million as a debt. But we have -- I have to remember to you that we have important number of treasury shares. So we are implementing our buyback plan by acquiring our own shares. So the value approximately of the shares that we own now is more or less 90 million, so almost 20 million in treasury shares. And we will use these shares in order to continue our M&A campaign, so to acquire a new company during 2023. Plus, we adjusted also in the number we presented, the number of the net debt by the means of the financial investment that we have embarked at [indiscernible] that is worth at the fair value of EUR 60 million.

So given that we have a negative net financial position, but sustainable with the assumptions that I shared with you in order to continue our buy and bid plan of companies within the ecosystem of the TXT group. As I said before, so the vision about market was limited because the configuration of today of the TXT Group is a multi-industry technological company. Aerospace and defense remains, let's say, the bread and butter, the area of high expertise that is 25% of the total. But the presence in the other industry segment is growing. Industrial automotive is more or less 10%, banking and finance is 23%, 11% comes from the public sector that is a strategic domain for us for growth. And we added, let's say, with the entry of Ennova and SPS also the telco media landscape for the industry offering.

Even if I want to point out that this 32% is driven mainly by the bigger, let's say, in that telco customers that are, let's say, our first customer, but with this customer, like Telecom Italia, for example, we don't just offer services for them, but we work with them to reach other industries. So they are a sort of vehicle, commercial vehicle to serve with software engineering and digital advisory services in all the other industries. So for the telco, we provide services to the telco company, but we work with them, with the market in order to bring services and values to the rest of the industries.

Some events for the first quarter. I want to point out and update you about the recovery funds so that we reached with the bid that we won that was announced a few months ago that is focused on the activities for the central ministry, so the public administration, center public administration, that brought the first results also in the first quarter because we ramp up the team and the performances of the company that is mainly focused on this topic that is HSPI are very positive in terms of growth. So I said before that the overall average growth is 11% in terms of organic, HSPI about 24%.

So a very strong increase of volumes driven by the -- let's say, the implementation, the starting of the projects related to the recovery fund. So a very strong and positive result that is just the beginning because, as already communicated, these kind of programs have, let's say, a first phase of start-up then a peak and then will close. So we are still in the phase of ramp-up and most of the results will be seen next year. So it's a long-term project. So -- that we are starting with the right pace. So we are growing, and we are serving. We are starting up the projects. We are hiring, and we are providing value according to the needs of this kind of big project that we won.

This project is strategic, of course, because it's in demand and PMO services for all the transformation of the public sector and as an overall, let's say, reachable revenue targets of EUR 120 million, of which one part is for us at least more than 60% is on us. So we are working in the right track in order to capture this big opportunity of growth that will make also our presence into the digital advisory offering for the public sector.

In terms of other, let's say, projects besides the projects that we are bringing to our historical customers and to the new ones that we are acquiring, I want to point out to some innovative projects coming from public funding, so in this case. These are one that we won during the first quarter that is related to technologies, enabling technologies like artificial intelligence and extended reality. For us, this is very important and strategic because we participate to these larger projects in order to improve also our capability to reach the market in our solutions -- in our smart solutions. So we are empowering our smart solution in big funded projects that can boost our platforms.

In terms of SOFIA, is a strong project in the industrial field, which we have a player like CNH that are using these new enablers like artificial intelligence, extended reality to improve their processes and their products. The overall project in this case is EUR 5 billion, of which 20% is for the group companies that are participating to it. Another example of funded projects that are enabling us is related to another project, more international in this case, focused on defense in this case.

And in particular, it's a big project worth more than EUR 50 million, in which there are main players of the defense market and the Italian players here are Aviara Leonardo, but there is Saab and other leading research institutions that are participating in to this project, is in focus with our, let's say, strategic goal of sustainability and green aviation. That is one of the fields in which we are investing, and we are driving the development of our products. It's focused on the design of the new propulsion for aviation, so we are speaking of hybrid, electrification, hydrogen. So all the new propulsion, let's say, trends that are coming in order to do the clean aviation. And in this case, we are the technological partner, offering the digital platform that is our products coming from PACE-related to the design -- preliminary design of the aircraft. And this platform will be a standard for all the companies within the consortium in order to build and to design models that will be implemented in the next few years. So we are in a position, preferred position also to be, let's say, to start to work on future projects of the aircraft, so to give continuity to our business [ and the other ].

Also, this is a project in which of the overall, let's say, budget of EUR 50 million, we will take more or less 5% in the next few years. But it's very important because it will put us on the main aviation programs that will start in the next future and will empower our technology, so our software platform that is used to do this sustainability design, strengthen the positioning on the market itself of the platforms.

In terms of -- another topic that we want to address that is more related to cost, but it means that we are trying to position ourselves very strongly in the market with this new brand and this new size and the extended offering. We restarted after a period in which, let's say, the presence also [indiscernible] or events was limited. We were starting again to invest to continue to put our, let's say, new offering in front of the market in many events. So our team, our ecosystems is attending the major, let's say, events for each sector in which we are.

And there is a strong commitment about the overall, let's say, organization in order to reach customers, to share with customers our vision, to listen to customers in order to understand which are the real needs they have. We capture a lot of opportunity on the market itself, and we are committed to continue to invest in our sustainability plan in order to continue to grow in all the segments in which we are present.

This is for the overall, let's say, business and performance review. I will ask Andrea from Berlin to join and to highlight a little bit more in detail the financials.

Thank you. Thank you very much. I wait for any questions in the Q&A chat so I will answer to you after the Andrea speak. Thank you very much.

A
Andrea Favini
executive

Thank you, Daniele, and welcome, everybody, to the financial section of this conference call, during which we will focus on the performances of the group in the first 3 months of 2023. Starting from the profit and loss of the period, revenue over the first quarter of 2023 were equal to EUR 52.3 million, up 71.4% compared to the first quarter of 2022, with the strong contribution coming, of course, from the company acquired in the second half of 2022.

With -- excluding the company -- the new [indiscernible] company, the revenue grew at 11% compared to the first quarter of 2022. If we look at the direct costs, the first quarter of 2023 recorded a significant growth that outperformed the growth revenues, and the growth was equal to 82.6%, and that led to a decrease in the gross margin as a percentage of revenues by 4.1 percentage points and the gross margin in the first quarter of 2023 was equal to 34% equals to EUR 17.8 million versus 38.1% in the first quarter of 2022 with a gross margin of EUR 11.6 million.

As explained earlier by Daniele, this effect is mainly related to the consolidation from Q4 2022 of the new acquired company with a different mix of cost and revenues and a dilution of the revenues coming from, let's say, proprietary software business with a higher gross margin. This effect is partially offset by the lower incidence of indirect cost, mainly R&D and commercial cost of the new acquired company against the company that were already in the consolidation perimeter in the first quarter of 2022.

In fact, if we look at the EBITDA margin of the period, it decreased by 1.6 percentage points, lower, of course, compared to the 4.1 percentage point decrease in the gross margin.

If we focus, for example, on the R&D development cost, the growth of 15.8% was mainly driven by the growing the smart solutions business with a return on the investment expected mainly in the second half of the year. In fact, the smart solutions business grew by 7% in the quarter with a growing R&D investment by 16%, with an expected return in the next quarter.

So if we look at the commercial cost, the commercial investment, we recorded a significant growth of 44.4% is, of course, partially also coming from the consolidation of the new acquired companies, which, let's say, structure is leaner compared to the business coming from, for example, the smart solution and digital advisory divisions.

General and administrative costs increased by a significant rate, 103.4%. But in terms of incidents on revenues, it remained constant compared to the full year 2022 and to the latest quarter of the 2022. And there is, of course, some impact coming from the ongoing integration of the new acquired companies within the TXT ecosystem. And also there are high cost related to discounting of new opportunities, due diligences and all the other costs related to the M&A plan. Say that we expect that the 8% is, let's say, sustainable value of general and administrative costs, and it will be, let's say, a target also for the full year 2023.

If we look at depreciation and amortization, there is a significant growth by 96.3%, and in the EUR 2.4 million as of March 31, 2023, there are EUR 0.9 million of amortization of intangibles, of which EUR 0.7 million consisted of amortization of purchase price allocation, meaning goodwill allocated to other intangibles. Other than that, there is a EUR 1.3 million of depreciation of tangible assets, with an increase also related to the M&A plan of 2022, and the residual value of EUR 0.2 million is related to impairment losses.

Looking at the operating profit, we recorded a growth of 39%, and the EBITDA was 8.6% in the first quarter of 2023 versus 10.5% in the first quarter of 2022. Financial charges grew by 53% and that equaled to EUR 0.4 million in the first quarter of 2023 versus EUR 0.3 million in the first quarter of 2022.

With the tax rate that remained constant in first quarter 2023 against the first quarter of 2022 to approximately 28% of the pretax income.

Net profit at EUR 2.9 million in the first quarter of 2023, up 40% compared to the first quarter of the previous year.

If we move to the net financial debt, as of March 31, 2022, let's say, the unadjusted net debt was EUR 24.6 million, a reduction of EUR 13.6 million compared to the year-end 2022. And that was mainly coming from, let's say, the cash generated by the operation and the reduction in the net working capital that we will address in the next slide.

If we look at the cash equal to EUR 46 million, it's up EUR 12.9 million compared to the year-end 2022, and it consists mainly on bank accounts held in euro with the major Italian banks. So in security is at a fair value consists of investment in the multi-segment insurance fund with partially guaranteed capital, government securities and bond with an overall medium, low-risk profile and for residual part bond loan. The short-term financial debt are equal to EUR 55.9 million, up EUR 4.7 million and are included EUR 4.4 million of IFRS 16 liabilities and EUR 2.5 million of short-term financial liabilities related to earn-out and Put/Call options.

So the short-term financial resources grew by EUR 8 million to EUR 38.3 million, and it's important for us to have, let's say, the power to continue, of course, also in the short term, our, let's say, M&A plan.

If we look at the other long-term financial assets, which remain steady as of 31 March, 2023, compared to year-end 2022, and they consisted of a mark-to-market of financial loan. If we look at the other liabilities, the noncurrent financial liabilities, we have EUR 4.8 million of liabilities related to IFRS 16, so mainly buildings, cars and so on, with an increase of EUR 1.1 million. And in the other noncurrent financial debt, there are mainly the longer -- the long-term portion of financial loans and are also included a EUR 7 million on long-term liabilities related to earn-outs Put/Call liabilities related to the M&A plan implemented in the last years.

So oncurrent financial debt grew by EUR 5.6 million compared to year-end of 2022. And the -- and if you look at the adjusted cash position instead, the group closed the first quarter of 2023 with a net debt adjusted of EUR 80 million. And the difference between the unadjusted net debt consists of the financial investment held in Banca del Fucino.

If we move to the next slide, the balance sheet of the company as of March 31, 2023. So in terms of fixed assets, a quite steady trend compared to the year-end 2022. In terms of intangible assets of EUR 77.5 million, they consist mostly of, let's say, the goodwill coming from the M&A plan of the last 4 years, which account for approximately EUR 65 million. Then we have approximately EUR 11 million of goodwill allocated to other intangible assets, mainly to customer relationship, and that sum up to EUR 75 million. And the remaining, approximately EUR 2 million, consists of EUR 0.9 million of the investment in the unconsolidated subsidiaries. And for the remaining part -- for the remaining residual part are included deposits, long-term deposits and tax assets.

If we look at the tangible assets, they remain quite stable compared to the year-end 2022 with a EUR 1.2 million increase. And instead, if we look at the other fixed assets of EUR 19.2 million, they include, of course, the investment in Banca del Fucino, the investment in the subsidiary and consolidated for EUR 0.9 million at other residual amount. But of course, main component the investment in Banca del Fucino in the adjusted cash position is [indiscernible] within the financial assets.

Moving to the net working capital in the -- as of March 31, 2023. The net working capital is equal to EUR 24 million, with a decrease of approximately EUR 13 million compared to the year-end of 2022. And this is driven by the decrease in the trade receivable. And that is mainly related to the seasonability of our, let's say, receivable with our customer. So -- and that is one of the main driver of the increase -- of the decrease of the financial debt of the period.

In terms of inventories, it consists mainly of, let's say, work in progress with -- for customer projects, for which revenues are recognized according to the percentage of completion [indiscernible]. If we look at the trade receivables, as already discussed, with report red a drop of approximately EUR 16 million. And the other, let's say, items remain quite steady in the period as well as severance and other noncurrent liabilities show a constant trend as of 31st March, 2023, compared to the year-end 2022.

Shareholder equity show an increase of EUR 1.3 million, and it consists of the net result of the period and the effect of the sales and the repurchase of treasury shares. No changes in the shareholders' equity for minority interest and the net financial position -- and the net financial debt decreased by EUR 13 million -- EUR 13.6 million, as discussed before.

If we move to the next slide, we have the shareholding structure as of March 31, 2023, that shows a Laserline and the vehicle of our Chairman, Enrico Magni, with a stake of 30% in TXT. then we have the managers owning a 16% stake overall in TXT. And the shares are nearly related to share that has been sold during the M&A plan occurring in the last 3 years. Then we have the markets, owning 43% of the TXT capital, and L.V.O Global Asset Management owning a 3% stake in TXT. We have treasury shares for 7%, and treasury share, in particular as of March 31, 2023, were 160,000, representing 7.38% of the issued shares as an average recurring value of EUR 19.96 per share.

In terms of dividends and treasury shares repurchased in the first quarter of 2023, TXT invested EUR 3.4 million in the repurchase of treasury shares. And that means that TXT repurchase 195,000 shares. We purchased at an average price of EUR 17.6 per share. Of course, the dividends have not yet been paid, so it's not included in the graph. And the EUR 3.4 million consists fully of the buyback plan. The dividends to be paid equal to EUR 2.2 million and will be paid later in May.

In terms of market data, the share price as of March 31, 2023, was equal to 19.96% and the TXT stock reached a peak of 20.9% in the first quarter of the year market cap as of 31 March, 2023 was equal to EUR 238 million. And the dividend calculated on the stock prices of 31st December, 2020, was equal to 1.4%.

Dividend approved also by the shareholder meeting is equal to EUR 0.18 per share. And as already discussed, that will cost TXT approximately EUR 2.2 million. So we are done for the financial section of this conference call. Thank you, everyone, for your attention, and now is the time for the Q&A. See you later, and thank you again for your attention.

U
Unknown Executive

Thank you very much, Andrea. So we have received a couple of questions during this meeting. And if you -- if any other questions come to mind, please let us know and send them in to us why we are outstanding on the question. So the first question comes from Andrea Randone. He asks, can you confirm the ambition -- one moment.

D
Daniele Misani
executive

another question...

U
Unknown Executive

Okay. Can you confirm the ambition for the current year of reaching an EBITDA margin of 14%.

D
Daniele Misani
executive

At least 14%. Yes, we confirm. As I told, the first quarter is always a little bit slower than the rest of the year, especially, we had a good track record in the last part of the year, fourth quarter. So first quarter is more a quarter in which, especially for software, let's say, the revenues are lower, but we confirm our ambition to grow in terms of profitability, thanks to the synergies, of course, optimization of costs and tax, of course, to the revenues that will come from software at a higher marginality with respect to the rest of the business related to services. So I confirm.

U
Unknown Executive

And the second question also, once again from Andrea is, can you help us with a qualitative reconciliation between the old and the new segment reporting?

D
Daniele Misani
executive

Yes. So equal let's say, the old segmentation was related to the industry. And during the last 3 years, we had a lot of, let's say, influence of other industry segment and within the historical ones. So the fintech and the aerospace, as you look now to the numbers, are worth the 50% of the overall revenues of the group. So keeping this, let's say, segmentation was not, let's say, good in order to give a true vision of the business as it is.

The new segmentation is more related to the offering and for digital advisory, software engineering Smart Solutions, we have an offering that is cross-industry. So it's not maybe -- some industry are more focused, for historical reason, to 1 of the divisions, but our, let's say, aim is to provide different, so upsell and cross-sell services and products towards the same customers. So this is the strategic vision. In order to reconciliate the 2 of them, so we'll continue to provide a vision also of the old segmentation as the first slide. It's a little bit maybe -- it's worth to have a follow-up. So many of you met us during the events also in the stock exchange so we can go deeper.

But the point is that, with the new segmentation, we are clustering the business of the companies, of the ecosystem that have the similar business model. So companies that are providing digital advisory are clustered together with a trend of business model that is very similar also in terms of profitability.

Companies that are offering engineering, software engineering services are clustered, and we cluster all the companies that instead have a product portfolio. I don't know if I explained too much. And I know Andreas quite, let's say, sensible about the vision, but I can offer a direct follow-up as soon as possible with Andrea Favini that will explain a little bit better the reconciliation among the 2 visions.

U
Unknown Executive

Okay. And Andrea Randone's last question is, what is the EBITDA margin of recently acquired Ennova in the first quarter of 2023?

D
Daniele Misani
executive

is a little bit better than 11%, more or less, something more.

U
Unknown Executive

So our fourth question comes from Nicolo. he did not leave his sir name, so I know who you are. His question is in regards to Banca del Fucino. And he's asking when do we think that we will exit the investment? And how much do we believe we will earn?

D
Daniele Misani
executive

Okay. So as already communicated, we are planning to divest during 2023. Of course, we are not in rush. As you know, at the end of the last year, there was a revision of the fair value of our participation, our shares into the Banca del Fucino was reevaluated with an overall value of about EUR 60 million against the EUR 14 million that we invested, correct Andrea.

E
Eugenio Forcinito
executive

Yes, EUR 16.5 million.

D
Daniele Misani
executive

Okay. So there is already a good gain in terms of fair value. So we expect at least to get this money, okay? But probably, there is also an opportunity to do a better gain because the bank is performing well, so they provided also the financial results of 2022 the last month, I think, so 15 days ago, so not so far from now. So they are public, so you can reach it on the web, and they had a very strong performance in terms of also volumes that they're managing and, let's say, net profit. So the banking is performing well.

We are not in rush to sell because, as we've shown, we have cash, and we have also our treasury shares in order to continue our M&A, and we have assets also to some credit. So we plan to do by the year with a good gain possibly better than the one that is now reached at least on the fair value.

U
Unknown Executive

Okay. And we have just received a few more questions once again from Andrea Randone. He is asking, are we planning an Investor Day the next months?

D
Daniele Misani
executive

Yes, we are planning to do it. So we are still defining if to do before summer or just after the summer. So we will speak and we will present our vision in 3 year in this event. So it's just a matter of organization, but will be done probably before summer, probably before summer or at least just after the summer so...

U
Unknown Executive

So now we have another question from a different Andrea. And he asks, when will we publish...

D
Daniele Misani
executive

Our Andrea [indiscernible] Berlin, no.

U
Unknown Executive

Okay. So he's asking, when will we publish the news or timing regarding the business plan?

D
Daniele Misani
executive

It is the same question more or less than the previous one. So we are planning to have an Investor Day still is not defined if before the summer break or just after. So in July or in September.

U
Unknown Executive

Okay. And we have a question from Alder Tomari, and he is asking, what about the EBITDA margin from software engineering and what is the target after synergies?

D
Daniele Misani
executive

Yes. So it's a good question also because when you integrate different companies, there is a potential to make, let's say, improvement also in the marginality. It will be -- take a little time like we have done in the past. And the software engineering division is mainly a division related to services around say, software, starting from the analysis to the development, outsourcing of software factory, quality assurance that is a strong value proposition that we have in our portfolio. All these kind of activity are mostly managed as work packages. So our approach is not an approach of time and material consultancy, but is a software engineering approach. So we offer customer a fixed price, project and provide them with reliable results.

Now, today, let's say, our target in general when we are looking to the 3 divisions is 15% profitability of digital advisory, 20% profitability of smart solutions, and for the software engineering, the target is 10% to 12%. So we are already, let's say, in target with our profitability targets. Of course, there is the possibility to improve. Today, we have a mix that is driven by more mature business and very specialized business like the one that we have in the defense area together with business that is more or less, say, generic. But what we are trying to do is to put this approach of, let's say, efficiency in managing fixed price projects in order to improve the profitability. But at the end it will be, let's say, a good result to arrive towards 15%, but still 10% to 12% is a target that we are planning for 2023.

U
Unknown Executive

Okay. So we have an anonymous question here. And they are asking what is the 2023 outlook for organic growth? Can we annualize 11%?

D
Daniele Misani
executive

We are targeting, as a guidance, more double digits. So 11%, we reached in the first quarter is a target that, let's say, we are using as a guidance for the whole year, okay? Depends a lot also on some boost that will -- can come by volumes of software revenues. But let's say, the guidance of 11% is good to annualize as a guidance. So the update will come, but it's the reason that we can keep this pace in -- for the rest of the year.

U
Unknown Executive

Okay. And another question we have, again, another anonymous question is, are there any progress on the EUR [ 50 ] million possible acquisition to be done in 2023?

D
Daniele Misani
executive

It's from anonymous, so I cannot ask to explain a little bit better. So I am -- I don't know, EUR 50 million where it comes from. But for sure, we have communicated that we want to do several other acquisitions during 2023. First, let's say, quarter strange for us because we are doing, let's say, so many extraordinary operation during the year. First quarter was a little bit, let's say, slow with respect to the past that we have done. Even if we are working on 2 main acquisition now that 1 of them we are targeting to do probably it's difficult that we can do it in Q2, but Q3, for sure, we will close it if everything is okay.

So there is still the full commitment about the management team in order to capture opportunity and close opportunities. We are working hard on it, and the results will come during the year. So the commitment is to continue with the similar, let's say, the similar approach that we had in the last year and the last few years because there is a lot of interest around. And we are attractive also for mid-enterprises that will join a project of aggregation in value creation and the ecosystem of TXT's tracking several opportunities. So...

U
Unknown Executive

Okay. Thank you very much. And we have an anonymous question going back a bit to organic growth. They are asking, what is the midterm outlook organic growth on a 3-year basis? And can we confirm double digits?

D
Daniele Misani
executive

On a 3-year basis, as I said before, we will do an Investor Day in order to explain to you which is our vision on a 3-year plan. Of course, we are working with this, let's say, target in mind, but what I can communicate now is confirm what I said before about the 11%. So double-digit growth for 2023. For a more or let's say, comprehensive view in 3 years, I ask you to wait for the Investor Day that I will share the vision that we have for the next 3 years.

U
Unknown Executive

Okay. We've just [indiscernible] over the anonymous person, it is Alberto [indiscernible] so all of these anonymous questions have complemented exactly. And he has asked one last question regarding the 2 new products that we talked about last time, so working capital solutions and AML software, I believe, referring to FARADAY [indiscernible] to contribute?

D
Daniele Misani
executive

They are contributing. We have to specify if they are contributing with profits or with volumes. So those 2 products, let's say, are much less mature in particular, working capital is the last one and the AML that is FARADAY instead more mature already on customer base. So with the -- so I go deeper differently for the 2 of the -- these products. So for the AML product related to, let's say, artificial intelligence for anti-money laundry that is FARADAY. We have signed important contracts with the main banking institution, but we are still, at least for the first quarter, in a strong phase of investment in order to finalize the platform and integrate the platform within the customer environment that is quite complex in bank institution, as you may know. So Faraday and the AML part is contributing in terms of volumes. So because there are revenues coming from the projects and from the licenses, but still is under heavy investment, so is not a breakeven, but not far from the breakeven. So the breakeven, according to our plan, is to be reached in the second half of the year, so by the end of the year. So for this year, they will not contribute with a positive boost in terms of profitability, but at least also not as a negative boost. So this is the plan.

In terms of working capital, instead platform for reverse factoring. We are slower than the initial plan that we had in mind. We had also -- if you look to our, let's say, results of 2022, also reevaluated our Put/Call option in terms of value because the plan is going slower than we expected when we started to invest, is bringing yet small revenues and small, let's say, losses. So we are still under investment. We did some strategic, let's say, partnership, looking for partners in terms of ensure the credit. So we are working with a broker that will support us and also to add an additional offering for the platform itself, providing a assured credit for the factoring that we are providing.

Still, there is a quite slow, let's say, process in order to bring customers, so bring stakeholder within the platform. So at the beginning, we were thinking that the onboarding of, let's say, the industry, the onboarding of banks within the platform was faster than we actually are facing. So instead, this -- with respect to the plan that we have for this unit, the profitability, the breakeven is still in 2024. So for the 2023, it will contribute with losses, even investments, or small investments. We are speaking about to EUR 100,000 to EUR 200,000 negative.

U
Unknown Executive

Okay? I just got 1 last question from us regarding the Banca del Fucino. He is asking do you defer intend to sell the shares of Banca del Fucino despite the IPO of Fucino green being planned? Or are you considering the hypothesis of waiting for the IPO?

D
Daniele Misani
executive

Also, this was probably already communicated in the past. Of course, one of the exit option of our investment is also the IPO. But because the IPO is still something that is out of control and can take time, of course, we are monitoring also the IPO as an option of this investment. It depends a lot of the timing of this IPO with respect to our needs of cash in order to continue our plan of M&A. So yes, the IPO is an option.

U
Unknown Executive

Okay. Thank you very much, Daniele. And so I believe those are all of the questions we have received. Should we have any other questions, please get in touch [indiscernible] try to apply as soon as possible.

D
Daniele Misani
executive

So thank you very much. Thank you, everybody. Have a nice day, and I wait you for the next conference call. And we are very committed in order to have another call like this with good results to share with you guys.

Thank you, Andrea from Berlin.

A
Andrea Favini
executive

Thank you, Daniele. Thank you, everyone.

D
Daniele Misani
executive

Thank you, again.

U
Unknown Executive

Thank you. Bye, everybody.

D
Daniele Misani
executive

Bye-bye.

A
Andrea Favini
executive

Bye.

U
Unknown Executive

Bye.

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