GFT Technologies SE

XETRA:GFT

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I am Sandra, the Chorus Call operator. Welcome, and thank you for joining today's conference call on Q1 2021 results of GFT Technology SE. [Operator Instructions] I would now like to turn the conference over to Jochen Ruetz, CFO. Please go ahead, sir.

[Jochen Ruetz]

Thank you very much. Good morning, everybody. I'm live from Stuttgart. I know it's a busy day today. It's a bank holiday tomorrow in Germany, so everybody is reporting today on Wednesday. I think it's quite crowded. So you guys are probably very busy. So let's jump right in and do this efficiently today. Slide #2, we had a very good start into '21, but we already gave it away, right, by giving a top message on the 26th of April by already upgrading our guidance on that day. And of course, this is now also reflected in today's presentation. So increased demand for digitization solutions was what drove our first quarter. The revenue rose significantly, and we do see a good trend going forward. Efficiency measures of last year, so the restructurings we've done, they are showing positive effects on the earnings side. Our utilization is significantly above last year, and the EBT has more than doubled in the first quarter. Operating cash flow and cash position is strong, and our number of employees is increasing further. We will look into that on one of the next slides. Let's go to Slide #3 at the key figures. So revenue after 3 months was up 10% to nearly EUR 124 million. And for the first time on this chart, we're showing the order backlog. A KPI, we're not following that closely at GFT, we're more focused on pipeline, which includes deals not signed yet, but looking promising. But as an information to the capital market, we now include the order backlog. And we do see that we are 18% up on order backlog versus previous year's 1st of April. When we look at the earnings numbers and start with the EBITDA adjusted, you see that all numbers are heavily up. EBITDA adjusted by 30%, mainly because of good growth on the revenue side with good margins. At the same time, strong utilization. So the negative effects from last year, which you see on the bullet points on the right, they didn't materialize again. On the restructuring side, we said we will do roughly EUR 4 million of restructuring this year, and we have done 1/4 of that, so roughly EUR 1 million of restructuring in the first quarter. That was even a bit higher than last year, where the bulk of the restructuring came in Q2. This year, it will be more scattered throughout the year. And last but not least, minor FX effect. Same is true for EBITDA. As you know, the gap between adjusted EBITDA and EBITDA is only earn-outs from mergers and acquisitions. And if we look at EBIT and EBT, we're up by more than 100%, EBT at EUR 7 million. The margin rose to 5.7%. Looking at the tax ratio, it looks like 26.4%. We guided 25% for the year. So we are still on track. Let's move forward, Slide #4 and look at the diversification of our portfolio. A slide we were already using in Q4, and now we're reusing it in the year '21. Let's start with the graphics on the left side, which is our client concentration and client concentration risk is included there as well. We do see that the clients who, on a yearly basis, will do more than EUR 50 million decreased heavily from 23% to 18%. Well, it's only 1 client, right? We call it the top 2 clients, and only one is really left in that size, which is Deutsche Bank. So Deutsche reduced by 12% in the first 3 months. And as the rest of the group was growing, it looks like a big decrease of this client group to 18% of our total revenue. What is interesting is the strong growth in the client group above EUR 10 million a year, here, we grew from 27% to 34%. We were able to move 3 clients from the blocks on the right, bigger than EUR 5 million or bigger than EUR 1 million into this client group of bigger than EUR 10 million. So that's a strong development. It drives efficiencies on the sales side, and it's good for stable revenue development. So that's very promising that this client group is heavily growing. At the same time, we're able to backfill the losses in the bigger than EUR 5 million client group by clients who are -- who were smaller before. So we're very happy with the way this chart is moving at the moment. And as we are able to backfill clients who are moving from right to left. On the right side, we do see the sector split that we have. Banking is slightly down from 76% to 74% of our total revenue. It's still an increase of 7% inside our banking revenue, but as the overall group was growing faster, the share is reducing slightly. Growth in insurance is stronger. Here, we have been growing by 25% in the first 3 months, and now the share stands for 15% of our total revenue. And last but not least, also the industry and other client group is growing, this was growing by 14%, and it now still stands for 11%. So the rounding doesn't really help here. So that's a strong development also on Slide #4. Let's move forward, Slide #5 and look at the quarters and compare. When we compare the first quarter of '21 with the fourth quarter, we do see that we have continued growing, which doesn't always happen, right? When you go back to the left in 2020, Q1 was on par with Q4. This year, we were able to even outgrow Q4 by 5 percentage points in all sectors, banking, insurance and industry. And also on the profitability side, the earnings improvement they are driven by, of course, the revenue growth with good margins, better utilization and the implemented efficiency measures from last year are working. When we compare Q1 '21 to Q1 2020, we do see a significant increase on the revenue side. We already mentioned 10%. And we do see that on the earnings side. And this was still the quarter without COVID. Let's remember that. We are also improving heavily, which is mainly due because of growth and again, restructuring measures now being efficient. All right. Let's move forward, Slide #6 and look at the revenue by segment. In Q1 '21 in Americas, U.K. and APAC. We have a strong organic growth, 31%, very strong numbers. It is offset somewhat by the currency headwinds we face. So exactly 10% are taken off the top because of currencies, well, the euro is still quite strong compared to those Brazilian reals and Canadian dollars. So the total growth, Americas, U.K. and APAC in the first quarter was 21%. Looking at Continental Europe, growth is only 1%. We had good developments in some of the markets, we mentioned Italy and Germany, but at the same time, here, our top 2 clients have been reducing. And therefore, the overall effect is only 1% growth. Now let's dive one step deeper, as we usually do at this moment and go to Slide #7, where we have the same numbers again, but we now show them differentiated by the top 2 clients, which is Deutsche Bank and Barclays. And again, Barclays with nearly not much revenue left and the other clients. When we look at Deutsche, we see that the share inside the group has reduced to 18%, as we've seen on the client concentration chart already, which nominally means a 13% reduction in the first quarter. This is a bit less than we had anticipated, we have planned for EUR 20.5 million, and now it's EUR 22 million with Deutsche Bank in the first quarter. So Deutsche seems to be stabilizing somewhat on a higher level than we had initially thought. And now looking at all other clients, we do see a growth of 17% versus previous year, all organic because there was no unorganic effect this year. And when we look a bit higher, it mainly comes from Americas, U.K. and APAC, where those -- this client group has growing by 30%. But also in Continental Europe, we see a growth of 5% with the other clients. Now comparing this number after 1 quarter to our full year guidance of EUR 520 million, we believe that for the full year, the top 2 clients will reduce by roughly 12%, while the other clients will grow by roughly 20%. So now we see minus 13% and plus 17% for the full year, it should be minus 12% and plus 20%. Moving forward, Slide #8, is the earnings by segment. And again, we're showing EBITDA adjusted, EBITDA and EBIT. I focus on EBITDA adjusted because the explanation is pretty much the same for all these categories. Americas and U.K. and APAC first. With the revenue increase, we also see higher earnings, a steep increase of 59% of the EBITDA adjusted. Here, of course, good utilization hubs, and we do have improvement from the restructuring measures, which were quite small, but also existent in this market. In Continental Europe, we also see a significant rebound on the profitability side, mainly because of the efficiency measures we have taken in 2020, the restructuring is working, which improved utilization, also the quality inside the utilization is better. So we have a comeback in Continental Europe to the normal margin levels despite not yet real revenue growth. While Americas and U.K., EBT improvement is mainly earnings -- sorry, revenue growth driven at a good profitability. We believe Continental Europe will follow, but first of all, it was important to be efficient again in that market. Moving forward, Slide #9, revenue by markets, the 2 cakes that we compare. And again, U.K. is on top. Last year, Spain was our biggest local market. Now U.K., again, went to the first spot in Q1 of '21. U.K. comes back with -- despite Deutsche Bank still burdening the market, but all other clients are growing strongly, and we believe this number of plus 3% increase throughout the year because we see very good demand in our U.K. bracket, London market. What else to mention, Spain is burdened by Deutsche Bank, mainly, but also we see softer post-COVID demand from Spanish banks. So here, demand has not picked up, like, for example, on the Americas side. It is softer. It probably comes later. But currently, Spain, therefore, is down 16% versus last year. And what else to mention, the big growth markets is Brazil, Canada. This year, Switzerland coming back and the Asian markets, especially Hong Kong. So here, we do see strong top line growth. Moving forward to our biggest clients, Slide #10, we always show the 30 biggest clients of GFT. We have 7 new entries versus Q1 of last year. All these clients on this list stand for 75% our revenue. A year ago, it was 76%, so pretty in line with the past. When we look at banking, the new clients are actually call in Italy, now you might say, I've seen them before. Yes, they sometimes come into the top 30, and they drop out again because they are just on the edge with the budgets that we can win at Credit Agricole in Italy. A new client is HarbourVest, a fund of funds from the U.S. We see Itaú here, the biggest Brazilian bank, and we have added the London Stock Exchange to our major clients in the first quarter of '21, and we see continued growth with that client as well. On insurance, it's WSIB, a client from Canada, insurance side. And in industry and others, we have 2 new names besides TRUMPF, who was there last year already. We have the digital company, Custodigit in Switzerland. They are integrating digital assets into the core fabric of regulated finance. So it's a true start-up whom we are building the IT landscape for. And Google back to the list as we do more business directly with Google or Google supports clients with handing out budgets for them. Therefore, Google is back on the list as well. Moving to Slide #11, the profit and loss statement. Here, I would only make 3 comments. Let's start with the fourth bullet points on the right, which is the personnel expenses. They grew by 7%. At the same time, our cost of purchased services grew faster by 33%. Usually, we add them, right, and then compare to revenue and that number is pretty much in line with previous years, only 0.5% improvement but this is already good enough to show some economies of scale. Second line I want to highlight is the other operating expenses. Here, it looks like we are EUR 3.7 million better than a year ago, lower cost of the EUR 3.71 million is FX effects, which happened on the other operating expenses and the other operating income side. So there is nothing gained there. So EUR 2.7 million improvement remain. And that is mainly travel costs. Q1 last year was still normal travel period and EUR 2.5 million of traveling happened then in this first quarter. Well, as you can imagine, not much travel cost inside GFT group, of those EUR 2.5 million, roughly 60% are client-oriented. So usually, we get the clients, the travel cost and revenue because we charge it to the client, but 40% are pure GFT travel so EUR 1 million true cost improvement on the travel side. This will, for sure, vanish in Q2 because last year, there was COVID happening. This year, we will not have trouble in Q2 as well. Travel costs might come back hopefully a bit in the second half, but I believe travel costs will never be the same again as we used to know them, especially client-oriented traveling will be less. Group internal traveling, we will see on how much we would do. Okay. And last but not least, I want to mention the last bullet point on the right, the income tax rate, 26% after 3 months, full year guidance remains at 25%. Moving forward, cash flow analysis, let's also do this quickly. Solid financing structure, full stop. We have a lot of unused credit facilities, and we have improved our group cash and our net debt was reduced, and that's the number on the very right to minus EUR 19.98 million. So that's roughly half on EBITDA on a full year basis. So good numbers, we have headroom for M&A if we find targets. Operating cash flow in the first quarter was EUR 15 million, very strong. Clients paying, as planned, in line with our expectations. We have a negative cash flow from financing activities only because we paid back bank loans, very simple. We've used our cash to reduce our interest payments, and we paid back some of those loans. So we try to be efficient there as well. On the usual investing side, this time, no M&A. Therefore, this is pure an investment into our classic assets, IT equipment, office equipment, et cetera. This brings us to Slide #13. The balance sheet, not really much to mention here. The balance sheet total was reduced mainly because we have paid back long-term loans, everything else is quite stable versus the end of 2020. So if you have questions, please come back to me there. And I would move forward to Slide #14, employees. Employee number, as you can see, is up to more than 6,200 employees. Now the biggest market when it comes to FTEs inside the group is Brazil. They have overtaken the colleagues from Spain. Both are at roughly 1,700 FTEs. Utilization is up versus Q1 2020. As I said, it was 90.2%, roughly 1 percentage point up, which is relevant at GFT. It's not as good as it was in Q3 and Q4, but we will see good numbers also for the rest of '21. And when it comes to attrition, we see it picking up slightly. Of course, COVID was helping the attrition number, the unwanted lever number. The long-term average is more like 15% to 16%. And we start seeing it picking up again, into that category of 14%, 15%, 16%, but the moving trailing 12 months average is still only at 11% after Q1. And this is how we track this number. But we have to be aware of this, getting people on board, it's getting more complicated. Salaries are rising again, and there is fluctuation in the market. Other companies hiring, well, we're hiring too, right? We're not just -- we're not a victor. We are playing this game as well. Let's move forward. Last slide, #15, the outlook for '21. As you have read, we have upgraded our revenue guidance to EUR 520 million. Previous guidance was EUR 480 million. On the EBITDA adjusted, we have increased to EUR 56 million. Previous guidance was EUR 50 million. And on the EBT, let's highlight that as well. We now guide EUR 30 million. The old guidance was EUR 24 million. So we do see our revenue accelerate throughout the year because demand is there, right? So COVID was for sure, stopping us somewhat, but now we're back on track. We're still investing heavily in sales. And as we always said, 2021 is about revenue growth, and we hope to see some efficiencies on the margin side and exactly both is happening. So we are seeing revenue growth and even faster improvement of our profitability. For sure, the efficiency measures we did last year are helping. We will learn how much travel will come back late 2021, but especially in '22. But overall, we're optimistic that this trend, that this year, we're probably growing by 17%. That's what we guide at the moment despite the top 2 clients not helping us and that this will move into the coming years. So we're optimistic for the years to come, especially for this year. So I'm looking forward to the next quarterly reports, this should be fun. So that's it from my side today. I hope that was, yes, 20 minutes, efficient as it should be. And now I'm ready to take your questions.

[Operator]

[Operator Instructions] The first question comes from Hinkel Knud from Pareto Securities.

[Knud Hinkel, Analyst]

My first question would be on the change of guidance with regard to the different customers group. I think at the end of last year, you pointed at that the top 2 clients should be down by 70% or even a little bit more. Now you've updated your guidance to minus 12%. My question would be, if that is already an effect of you talked last year that many -- that banks are looking increasingly to move part of their IT to the cloud and you got relationship to Google. Is that helping here already? Or is it more like kind of the tide lift all boats effect that we are seeing here? That would be my first question. Second question, the strong top line growth that we're seeing. Can you give a little bit color of what areas are in high demand here? What is specifically going well? Is it the cloud business? Is it -- are there other areas that are in high demand? That would be helpful. Thirdly, I see that the currency effect is quite small. Although you are active in many -- or in the U.S. and Brazil, where you see pronounced changes of exchange rate. Is my interpretation correct that you have a large workforce in Brazil and where we saw a big real year-over-year, and you're delivering into the U.S., where -- so you more -- you see a kind of overcompensation in that regard. So 2 weak currencies, but real, even weaker than the U.S. dollar. So that has been compensated by that? And my third question -- or my fourth question is more regarding -- more about housekeeping items, where do you see restructuring expenses for the full year and where do you see the effect on underutilization again for the full year? Thank you very much for taking my -- lots of questions from my side. Thank you.

[Jochen Ruetz]

That's fine today because I think we're a bit slim as some had to attend other calls. So yes, guidance for the top 2, minus 12%. I think you're right. We had guided initially minus 15% to minus 17%. So we expected a bigger increase mainly from Deutsche Bank. And yes, the Google and the cloudification projects at Deutsche Bank are helping us, right? We have a good positioning there with our strong cloud knowledge and cloud team. So that is supporting this trend, absolutely. At the same time, we also see the bank in some other areas, spending a bit more on IT than initially expected. So even in the market that I always name is most under risk because we will lose some business, which is Spain, it didn't reduce as much as we had thought. So maybe Deutsche Bank coming back to some profitability is also helping their IT budgets and then also helping the GFT and other IT vendors out there. And therefore, Deutsche, yes, big cloud momentum, that's very strong. That's helping us and maybe profitability increase at the bank, helping as well. Top line growth, where does it come from? Yes, you named it, right? It is the same trend giving last year. It's those new technologies we talk about, that are on high demand, cloud, cloud, cloud, a main driver, but also classic digitization projects are going -- are continuing, so we call that digital banking. And this is happening not only in banking, also insurance. So it's Guidewire or other digitization projects in big insurance companies. And so we see clients taking bigger projects again versus like 2 years ago. And especially on the insurance side, well, we have strengthened it 3 years ago beyond acquisition. I think we now have just a better positioning to leverage that demand that we see in the market. And therefore, we are participating in that as well. FX, small effects, yes, you're right. The markets that show negative FX versus the euro is Brazil and Canada, but these are mostly onshore markets for us. Brazil delivers 10% of its revenues to other countries, 90% are in the country itself. So it is like-for-like. Of course, we would show higher EBTs on a euro basis if that real would be stronger, but we do not report that number, right? Because it doesn't make any sense to report it. We only report it on the revenue side, how much the FX effect is. And yes, when we deliver into the U.S., that is somewhat helping, that the real is quite weak. And as you say correctly and the dollar at the same time weakens versus the euro as well. So those little FX effects that we see are mainly coming from Canadian dollars and U.S. dollars. And then U.S. dollars more in Asia than in the U.S., funny enough because there, we deliver from European countries like Poland or Spain. The restructuring number for '21, yes, we said it would be roughly EUR 4 million. Today, I expect it probably will be between EUR 3.5 million and EUR 4 million. With that good performance, we might need less restructuring than we had initially thought. This compares to EUR 8.8 million in 2020. So there will be a steep improvement of at least EUR 5 million, maybe a bit more. Underutilization, well, in last year, we gave the number this year, it should be a flat 0 throughout the full year, right? There should be no underutilization. There was a 0 in the first quarter, and we do not expect any effects from an underutilization on group level for the total group that is relevant to mention. And therefore, from that perspective, operationally, it will be a normal year, back to normal, and we can really concentrate on growth and getting the people on board, which is now the real challenge, right? When you have this growth rate, you need to hire the people, train the people and make them ready for projects. And this is now a top challenge for the GFT group at the moment. And probably when you talk to other IT vendors, they mentioned this same challenge. I hope that helps?

[Knud Hinkel, Analyst]

Helps a lot. Thank you.

[Jochen Ruetz]

You're welcome and ready to take more questions.

[Operator]

[Operator Instructions] Next question comes from Johannes Ries from Apus Capital.

[Johannes Ries, Founder]

Dr. Ruetz. Maybe one or two short follow-on questions. Maybe first on some nonbanking activities, insurance and industry, you see also strong good activities here. Could this -- both areas outgrow the banking sector going forward? And is industry after you saw it was clearly hit by the COVID now coming back from other sides. I hear a lot about maybe improving IoT projects. Do you see also the first signs or is it too early to call it?

[Jochen Ruetz]

That was first question or was that all questions?

[Johannes Ries, Founder]

That was, maybe 2 together.

[Jochen Ruetz]

So yes. We do see those 2 smaller areas inside GFT outgrow the banking sectors, at least in '21, probably also in '22. Here, size helps. And I think what is a bit reducing speed in the banking sector is the big European banks, which are still a core part of our portfolio and which currently are not increasing spending, like we see in our insurance and industry clients or in our clients in Americas, U.K. and APAC, probably the 0 interest and the over banking situation in Europe is just ongoing, and that's not helpful. Therefore, there, the growth trend is not so strong, while the Americas give their best to also grow our banking business. Insurance and industry will outgrow it. Insurance, very strong at the moment, 25%, and we don't see it slowing down in this year. And for industry, we would like to see faster growth rates. We're still quite small industry. IoT is an attractive field, and we have positioned ourselves. We're not happy yet, and we're coming out of the COVID woods for the industrial clients, and it's picking up a bit slower than we had hoped. So yes, on both, they should outgrow banking, they should outgrow our GFT average growth rate and contribute to that. And the industry business still has to push up a bit. We want to get into the plus 20% on the revenue side there as well. I hope we will get there this year already latest in 2022.

[Johannes Ries, Founder]

Okay. Super. And maybe some words on Asia, you had some first successful projects there. Are the follow-on project to come? And could it be a larger business maybe in 3 or 4 years going forward?

[Jochen Ruetz]

Yes. Of course, we're still young and small in Asia. Last year, we did EUR 10 million. This year, we want to do 60% more, and we want to increase from there continuously, right, on a similar growth rate in the years to come. Therefore, still small, focused on certain client groups, which is mainly banks at the moment. And now just started our delivery center in Vietnam. So we are now in Asia as well. We cannot only offer near-shore locations in Europe with strong expertise, especially in cloud that we have, we can now also offer competencies from Asia and from Vietnam, and we're growing that team from -- I think it's 35 people today towards 100 at the end of the year. So yes, the plan is to be in Asia and stay and grow client by client. That will be the focus.

[Johannes Ries, Founder]

Okay. Super. Maybe a more general question about wages and prices. How are you developing both important maybe key figures for you? How much -- what average wage increase you expect for this year? And given the good demand situation you have, are you able to improve your prices?

[Jochen Ruetz]

Yes. So wage is, of course, as I said, people are -- the challenge number one, attrition, and then, of course, wage comes into play immediately. And therefore, wage is very different across the countries. Therefore, a group average doesn't really speak for the regions, but we do see a significant increase because, of course, last year, the increases were smaller because of COVID. In some markets, we didn't give any increase, we were not able to. And now things are coming back. And therefore, I expect an increase across the group of 4% to 5% and this is coming: A, via us increasing salaries in average across all countries; and B, people we hire come in at a higher rate and a higher price than the average on board. So there, you do see that the market is pushing up. And for sure, we're pushing up prices as well, which is far easier in new clients and new projects and in the high-tech heavy projects, it's a bit tougher on all application management business companies are doing. Over the last years, we've been reducing our application management and trying to be more in the continuous price negotiation projects where you can more often discuss the price, but that's always a challenge that when the price inflation comes quite fast, keep up with pricing, but that's our daily challenge, right? That's something we do since GFT was founded. Something we always have to deal with and we will manage again this year, and we gave a guidance that shows we should be able to compensate for the increases on the cost side versus -- via higher prices.

[Johannes Ries, Founder]

Given also the split of your activities, we also discussed maybe in more out of the machine room upwards, you'll remember your great picture with a large ship with -- that maybe the mix is also improving. That also helps that maybe your overall margin, despite this general trends with wages and prices, but it moves to the space where you have more pricing power and maybe get better margins and better prices because it's more advanced high-end solutions you're delivering. How much this could help to improve your margins going forward? And remind me, what is again, the EBITDA or EBIT margin target in 2 or 3 years? Wasn't it nearly 10% for EBITDA or am I having this wrong in my mind?

[Jochen Ruetz]

Well, let's start with -- there is no formal long-term guidance at the moment. Yes, you're right. We have been moving somewhat out of application management more into the not so recurring, but probably price-wise more attractive new projects with the new technologies, and this should help our margin. Our current EBITDA margin is the 53 divided by 520. So that's exactly 10%. And of course, we want to continue to grow this. The long-term target is, for sure, 1 to 2 points higher, but this takes years. But at the same time, growing the top line at a growing margin, maybe not that fast, but growing margin should be a positive trend for the capital market. Therefore, we've tried to combine the two at the moment because we see that attractive cloud business out there, that attractive insurance and IoT business, we push the top line and margin will follow.

[Johannes Ries, Founder]

Okay. There was one thing left, but it's out of my mind. I'll come back with context.

[Operator]

Next question comes from Andreas Wolf from Warburg Research.

[Andreas Wolf, Research Analyst]

I have a couple -- sorry, if you've already answered them. It's a reporting today. But my question is on the industry vertical. How do you see this vertical evolving during the year? So some companies basically point to a weakness here? What's your view on the sector here? The second is on banking in general. My understanding is that last year, banks have invested into digitalization in order to cope with new requirements in the COVID-19 environment. Is this still going on or have the topics changed, i.e., are those more strategic now?And then maybe quickly on employee attrition. You've mentioned already, it's quick to onboard people. Working from home seems to shift towards work from anywhere, right? My question would be, would this basically support your hiring? Or would it increase attrition as you also have employees' initial locations, which might favor, let's say, the service delivery model of onshore providers who might be more flexible now to a paradigm shift, let me call it this way, on the customer side?

[Jochen Ruetz]

Let me answer backwards. So attrition first, well, for sure, we've been initial player for many, many years. So we are used to this remote working of some sort. Your remote in the past meant from a GFT office in a lower cost location and delivering into location like London, Frankfurt, New York, into a higher cost location. So we are used to that model. Now the work from home wasn't that big of a shift for the GFT world, but everybody else is making it now, too, which has -- which is 2-fold. On the sourcing side, of course, we suddenly see other companies, hey, this is working. So they try to also go to hire people from wherever, as you said, work from wherever you can be in the Amazona delta in Brazil and still deliver IT services. And you could do that for any company. But the company still has to deliver to the clients and needs a brand that works, that you can make it possible and not just a scattered pool of individuals who can code. And I think there, we are well positioned. Our clients know we can do it. We are now sourcing broader than in the past, of course. And what we do also see is our clients are accepting this more than in the past. In the past, they wanted us to sit in closed rooms, closed offices, be it our office or their office. And this, of course, due to COVID has changed, too, you can work from your home office, the GFT people, just like my own banking IT people, they do the same. And this trend will probably continue. They will not ask all of us to go back to offices. So that is our business model from day 1, and this should continue. So it's a bit of both, right? We will see more competition when it comes to the sourcing side. On the selling side, we believe more clients will be ready to accept us delivering from everywhere than in the past, which should also help us. Therefore, it's not a clear answer. But with our past and our methodology, our experience with near-shoring, we should have a head start here. When it comes to banking, what are the topics? Well, we've not been benefiting heavily from COVID banking topics last year. That was more, I would assume, technology at work that was more infrastructure, hardware-oriented. There were some things to fix, but mostly, we -- we continued working on the digital projects over the last years. And this is ongoing. And now it looks like a lot of banks have pulled the plug, especially on the Americas side and APAC side and are now handing out more digital projects than they did in the COVID year where everybody was a bit cautious. So that's what we see for us, not much has changed. And it's still, of course, the trends I already named the cloudification. On the insurance side, it's the digitization, be it via a standard tool like Guidewire or via a self-made tool. This is what is currently happening and continues to happen. And in the industry side, yes, we do see growth. Our Q1 numbers show 14% up, but yes, we would have hoped for more. So it is taking a bit longer for the industrial IoT business that we focus on to really come into a growth mode. So that is, for us, also something we work on. We are still quite junior to that market. It's the youngest of our 3 pillars and therefore, for sure, we are learning more on the industry side than on the banking side, where we are more a player on the industry side, we want to become a player and we're investing here, but we do see growth. So it's not like -- it's not working this year. 2020 was the challenge. COVID was the challenge for many industrial clients. Now on the IoT side, we see clients coming back. And therefore, we're optimistic for '21, but it will not be as good as we might have hoped. So growth in the plus 20% would be our hope for the year. And so far, 14% shows, we're not there yet. So we will have to track that over the next quarters.

[Operator]

We have a follow-up question from Knud Hinkel from Pareto Securities.

[Knud Hinkel, Analyst]

I have a follow-up question on personnel again. You mentioned that competitors are also looking into the near-shoring business model. So is there some price pressure building up, maybe longer term, I mean, demand situation is very good now, but if also competitors change their business model and lower cost that might be due to some price pressure longer term? Is that what you expect? And secondly, a question on a little bit soft factor, so to speak. Now that we are all working from home, I can imagine that -- so the loyalty stuff like this. So -- and a culture is harder to convey to new employees. So my question would be, do you expect attrition rates to go back only to past levels or maybe due to structural changes in the personal space, do you expect attrition rates to become higher in the mid and longer term?

[Jochen Ruetz]

Yes, that's a good question. I don't really have the full answer yet on how attrition rate. But it will go back to the normal 15%, I would assume, right? That would be just normal in a growing booming market. As everybody can hire everybody everywhere, which is the theory, there might be even more pressure. And yes, we do see some players moving into markets we have not seen, right? So if Microsoft moves into a market like Costa Rica, and they pay 25% more, people move, right, this happens. It will be interesting to see how long that trend goes on. If it's a long-term trend or just a short COVID period. We are there to stay, and I think we are able to prove that. And this should help on loyalty and culture, people who want a role that they think they will also be able to do in 3 years' time. We want to offer attractive projects, which for IT people is the key driver for their job. So we want to be on the high-tech side, on the tech-heavy side, and we want to continue offering onshore and nearshore work to our people, meaning, hey, you can work in your local language in your country, but it can be even a bit more. You can even boost your career by working for higher cost markets like New York, London, Frankfurt, in lower cost markets, you can practice your English. So we continue to leverage on those assets that we've always leveraged on also in the offices. Just now we bear work from home. But some of those trends you mentioned, I think they are not yet fully clear. We will have to learn on how the attrition rate will really go. Where it's going to stabilize again, where it's going to price go. In theory, a lot of things are possible today, and we will have to see how clients, how other IT competitors and how the people will use it. Therefore, I can't give you the full answer to all those questions. We will -- there will be a learning curve on the fly. Today, all GFT people are still in their home offices. And it's mostly unchanged. We believe offices will come back in the coming months. See how people want to utilize them, how clients want us to utilize them. So this will all pay into this learning pool I was referring to. So maybe something to really tackle every quarter and we're coming back, right.

[Operator]

There are no further questions at this time, sir.

[Jochen Ruetz]

Okay. Well, as you said, and as Andreas Wolf said, it's a busy day out there, get through it and then enjoy the long weekend if you are in Germany. And thanks for listening today. Next, up his annual meeting at GFT somewhere in June and then the quarterly numbers for Q2 beginning of August. Happy to hear you all again back then. Thank you very much for today. Bye-bye.

[Operator]

Ladies and gentlemen, the conference is now concluded. You may disconnect your lines. Thank you for joining, and have a pleasant day. Goodbye.