GFT Technologies SE

XETRA:GFT

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, welcome to Q1 Figures 2024 of GFT Technologies SE Conference Call. I am Sagar, the Chorus Call operator. [Operator Instructions] At this time, it is my pleasure to hand over to Mr. Andreas Herzog, Head of Investor Relations. Please go ahead, sir.

[Andreas Herzog, executive]

Thank you very much, operator, and good morning, ladies and gentlemen, and welcome to our today's investor call and our figures for the first quarter of 2024. As always, here with me is our CEO, Marika Lulay; and our CFO, Jochen Ruetz. Both will lead you through our numbers and answer your questions afterwards. The corresponding slide for this presentation, you will find on our home page. So without further ado, I would like to hand over to you, Marika.

[Marika Lulay, executive]

Thank you, Andreas. So good morning, ladies and gentlemen, also from my side, Marika Lulay speaking here, and we go directly to slide #3. So as anticipated in our last call, we delivered a solid first quarter despite a rather [ clouded ] market environment. And on this backdrop, we can confirm our previous full year guidance regarding the year-over-year growth rate north of 15%, both on revenue and adjusted EBIT level. Now to achieve this, we continue to believe that growth, especially organic growth will accelerate in the second half of '24. Now when you look at the slide, you might wonder why we now talk about EUR 905 million revenues instead of EUR 920, which was the absolute number we guided last time. Short explanation is that this is due to a reclassification of sales taxes in Brazil. And the most important message is there is no impact on any earnings level with this reclassification, but it does reduce the top line. In order to ensure a like-for-like comparison, we also reclassified this for the previous years, and Jochen Ruetz will certainly later explain in more detail and give you the background information for that. However, the final effect is that nominal earnings are untouched with regard to our guidance and growth rates stay unchanged. Now let's look at Q1 '24. We grew our revenues 13% year-over-year, which was strongly supported by our successful M&A strategy in Germany and Colombia. Our adjusted EBIT has grown by 6%, mainly impacted by tougher market environment and weaker utilization by the way, as expected by us and as we already spoke about it in our last call. Good news is the integration of Sophos has started and is running very smoothly. We are very confident that the integration will be finished within Q1 next year. We already see the first cross-selling results. Also, I'm very happy that Marcos Santos, our current Head of Americas has been appointed as my successor, was already announced end March. And in the second half of '24, we will work together to ensure a smooth transition. And from January 1, '25, he will be the sole CEO. On the market positioning side, we made progress in Q1, our positioning regarding artificial intelligence and digital currencies is paying off. We do see great interest in the solutions from our AI.DA Marketplace and the universal payment network called UDPN which we recently went to market with the commercial Sandbox. And several commercial and central banks in Asia and Europe are already now using this UDPN test environment to evaluate and develop the latest digital currency technologies and use cases. And we spoke about UDPN already several times on these calls, and we consider this platform becoming relevant in the next years when digital currencies will be launched by the central banks. And on the last point on that slide, our efforts regarding CSR and ESG ratings have paid off. We improved our rating with CDP from C to B, means we are now above average in our industry. Let's move on to slide 4. And I think the ones of you who follow us for a while know this slide already, which illustrates our strategic approach to stay ahead in a very vibrant and fast-changing industry. We simply call it our Wave strategy. And I already talked a bit about UDPN, our most future-oriented investment into a platform. So let's come back to the present where we run a large portion of our business around building next-generation platforms for our clients as well as solutions with generative AI. And we made further progress here, as you can see. We enlarged our partner portfolio on the next-generation banking solutions to Mambu, which is a core banking solution provider based in Germany. Their solution fits quite well to Tier 2, Tier 3 banks. By the way, regardless that they want to migrate from legacy systems or build a new digital bank. And we are currently already engaged with several banks in Europe implementing Mambu. Now on slide 5, I want to talk about our most recent success in Romania. Engine by Starling is the core banking platform built by Starling Bank from the U.K. Starling Bank is a challenger bank in the U.K., one of the digital banks there. And they decided to make their platform available for third parties, and they approached us to help them with their very first client which was in Romania. So within less than 1 year, we built the digital bank, which is now called Salt in Romania. They went live recently and the win ratio of new customers is already stunning. And the reason I talk about this is to show to you that our capability to build a digital bank is independent from the platform technology we use. We partner now with already 3 well-known platform providers for next-generation banking. And believe me, if tomorrow a new one appears, we would be the go-to partner. In addition to that, with our recent acquisition in Colombia, we have now added skills and experiences around existing core banking platforms like [ Oracle FlexC and other Senegal ], et cetera. So we cannot only build a bank from scratch to become a next-generation bank, but we can also help clients migrating from existing legacy platforms to next-generation banking offer. And this altogether clearly enlarges our addressable market to support our clients moving into next-generation banking. So let's go to the next slide to talk about our progress with generative AI. Well, like we did 7 years ago, GFT went here all in. We used GenAI ourselves to improve our own productivity. So last year, we started an internal program to bring the whole company into an AI mindset. And the results are already measurable. First, there was a noticeable increase in demand for AI solutions such as GST impact data in all core sectors. And this specific solution utilizes generative AI to support various processes in the software development life cycle. It is currently being tested by numerous Tier 1 banks, insurance companies and infrastructure companies in South America and Europe. It increases the overall productivity of the software development life cycle in average by 25% and obviously, even a bit more in some special scenarios. And our clients are now evaluating to use it across their [digital] landscape. We firmly believe that in the future, there will be no software development without GenAI anymore. It is a change to our own industry that everybody will have to go through. Another progress we made; another example is our solution called Enterprise GPT. It enables banks to use GenAI technology, by the way, any GenAI technology in line with regulatory requirements. And the implementation of this framework is possible within a few days, and then banks can use it to develop their own applications. We closed the first client in Germany in Q1 and they already went live with their first application. But enough of [ pros ] and storytelling, let's go into numbers. I hand over to our CFO, Jochen Ruetz.

[Jochen Ruetz, executive]

Thank you, Marika. And let's go to slide 8 and start with revenue. Talking about revenue, as Marika already indicated, in 2024, we are implementing a minor adoption to our revenue reporting. To explain this in a bit of detail, I ask to quickly follow me to slide #30. For those following the presentation online, we will show the slide on the screen. In Q1 '24, we have decided to revise the accounting practice for Brazilian taxes directly related to revenue. In total, we talk about 4 different small taxes in Brazil that represent 10% of the local revenue. Previously, these revenue-related taxes were recognized as revenue and corrected in the income statement under other operating expenses. With effect from 2024, these taxes will be recognized directly as a reduction of revenue. So in other words, we will treat them and show them like the typical VAT in European countries. Our auditors approved of the old way of presenting these taxes, which we have applied from the start of our Brazilian organization. And our auditors also approved and support of our adapted way of showing the Brazilian revenue in 2024. In order to not confuse our investors and analysts, we also adapt all past figures, as you can see in the table on slide 30. If you are interested in the revised revenue for more years, please contact our Investor Relations department, Andreas Herzog and Nicole Schüttforth., and we will send it to you. Talking about detailed numbers, both the Q1 '24 and the comparable Q1 '23 revenue is now roughly EUR 3 million lower than in the old reporting. Therefore, this revised accounting practice has no impact on our revenue growth in the year 2024. The revised accounting practice also has no impact on our profit KPIs. They are all unchanged, as Marika already indicated. As revenue overall reduces a bit, the EBIT adjusted and the EBT margins are lifted by roughly 13 basis points. So now let's go back to slide 8, and we'll get the figures. Revenue came in at EUR 212.4 million, now comparing to the adapted EUR 187.7 from last year, which is a 13% growth year-over-year. I will go into more detail where the growth comes from on the later slides. The [ order ] backlog is up 15% to more than EUR 404 million. It was benefiting from the [ softwares ] backlog, which is a bit higher versus projected revenues than in GFT. EBITDA, up 10%, EBIT adjusted up 6%. The little gap is explained by virtual positive virtual share adjustments, which we had to book at the end of Q1. The EBIT adjusted margin is at 8.1% as expected, somewhat below the previous year. On the right side, you see the third bullet point and the little bullet points. The capital adjustments and the FX effects didn't have a major impact on the Q1 comparison to last year, both were there, but nearly unchanged. The EBIT is spot on last year, EUR 15 million, margins slightly down. We already indicated that we have more interest expenses and more purchase price allocation effects due to the Sophos acquisition in 2024. Net income up 1% and the employee number is up 21%, but I will come back to that on slide 16. So let's move forward, slide #9 and start on the right side. We see a strong growth in banking and in our industry sector. Start with banking supported by Sophos, which is now included for 2 months in the year 2024, did not exist in '23. Targens, which we acquired in April last year is also included with the full 3 months. It was not included in the previous year. So we had some tailwind from M&A, leading to 19% growth in our overall banking sector. Going to industry, we're up 16% in this not so easy category at the moment. So that's a good development in the first quarter. And at the same time, we have challenges in our insurance business where we had high comparables in '23. Some big projects came to an end in the middle of '23 and already for the full year '23, we were only able to show a flat zero and currently, we're down by 11%. Probably will pick up somewhat throughout the year, but it looks quite flattish on the insurance side. Let's go to the left. The portfolio is well balanced. It's now a bit more mixed because we have added targens for the first time in the first quarter. We have added Sophos. So the mix is a bit changed. While there's only one client in the bigger than EUR 50 million bracket, which is Deutsche Bank, representing 16%. Then we see the clients more than EUR 10 million are slightly lower than a year ago, but the clients bigger than EUR 5 million have heavily grown, again, on the back of the client group between EUR 1 million and EUR 5 million. So the mix has changed due to the new companies inside GFT, and we will now compare to this new mix in the future. Moving forward, slide #10, the breakdown by quarter. So when we compare Q1 '24 to Q1 '23, we see the 13% growth already mentioned. We saw mainly revenue improvements in markets of Europe and South America and the Anglo-Saxon markets have been tougher. On the EBIT adjusted side, growth of 6% due to lower sales price increases and a bit weaker product business inside GFT. When we compare to the last quarter to Q4 of '23, we also see a growth on the revenue side, 4%, but it is driven by M&A. And the EBIT adjusted is down mainly because of a far lower utilization in Q1 versus Q4 of last year. Moving forward, slide 11, the breakdown by business segments. Let's start at the top, Americas, U.K. and APAC, quite a mixed bag, organic, minus 7%; M&A, plus 9%, FX tailwinds of 2% lead to an overall growth in that business segment of 4 percentage points. Sophos is included in M&A and supporting. We saw growth in Brazil and Mexico, but we see declines at the moment in our Anglo-Saxon markets, U.K., U.S. and Canada overall, 4% growth. The EBIT adjusted is burdened by a weaker performance, especially in the Anglo-Saxon markets, where we do have a lower utilization, which is a bit disruptive in the first quarter. Going for Continental Europe, dynamic growth, 27%, 12% organic, 14% from the targens acquisition. So overall, strong development in that market. Also, the EBIT adjusted benefited from this trend. Here, we do see the impact, especially from Spain and Germany. Overall, the group numbers already mentioned 1% comes from organic growth, 10% is M&A driven and 2% is FX tailwinds. So this is a development as indicated already on the first slide. One very little detail, we're able and we have heavily worked on that to allocate more holding charges to our Brazilian entity in 2024. This will burden the sector Americas, U.K., APAC, sorry, the segment, Americas, U.K. APAC with EUR 1 million per quarter, and it will benefit the others line that you see here as well. So the others line will look better in '24 onwards, also comparing to '23 because we allocate more cost to the Brazilian market. And by that, allocate in line with all other countries inside the GFT universe. Why did we do this? Also to optimize tax effects. I'll come to that in a moment. Moving forward, slide #12, is the GFT revenue by markets. And again, Brazil is back on track. While '23 was a tough year for us, we see Brazil growing in the first quarter by 11%, and we have a good pipeline in that market, very good news. Second biggest market, Germany, benefiting from the targens acquisition, strong growth rates, for sure, nontypical. It will now normalize in the second quarter. Then come all the Anglo-Saxon market, we see the U.K., the U.S. and Canada are all in negative territory, minus 5%, minus 19%, minus 14%. Here, this is in line with what peers currently report when they are highly focused on the Anglo-Saxon market, we see the same challenges for new business, new projects with banks and insurance companies in these markets right now. We see a turnaround in the second half, but the first half is challenging in those markets. And last but not least, our classic continental European markets like Spain and Italy showed decent growth, also our other South American markets with Colombia being here for the first time after the acquisition. This brings me to slide 13, which is the income statement. It starts, of course, with the same revenue that we have already seen. It is adapted. Here, important to mention that in the other operating expenses line, you now see a lower number than last year because the correction of the Brazilian revenues, tax-related topic is in this line item, roughly EUR 3.3 million in Q4 -- sorry, in Q1 of this year and EUR 3 million in Q1 of last year. Looking at the bullet point #4, the most important bullet point in the GFT Group, which is the personnel cost related to revenue, and we do add personnel cost and purchase services. Of course, this represents all the consultants and freelances that we buy for our revenue. We are at 83.2%. And usually, this indicates that we have issues on the margin side and that the utilization or the cost increases are not in line with what we achieved last year, where we were at 81.1%. So that's the KPI we're working on. That's the utilization number, that's the price increase number. And we will see an improvement, not yet in Q2, but in the second half of the year. Last but not least, the income taxes, we had hoped a bit better improvement, especially because we're now able to allocate more allocations to Brazil, which will help here. But at the same time, we've added Sophos in Colombia, which is a high tax country with 35% tax rate. And therefore, it's a mixed bag on the taxes. It looks like 28% to 29% for the full year, like in Q1, which brings me to slide 14, the cash flow analysis, and let me start with the number on the very right bottom. Net cash at the end of the first quarter is at minus EUR 77 million, of course, heavily impacted by the Sophos acquisition, which you see in the cash flow investing activities. The cash flow from operating activities is at EUR 6.4 million, which compares to minus EUR 3 million last year. So it is a normal development for the first quarter. For the full year, we expect cash flow to be at roughly EUR 50 million operating cash flow, and we believe the net cash position at the year-end should be at roughly minus EUR 40 million to minus EUR 50 million, so roughly a half EBITDA factor. This brings me to the balance sheet, slide #15. Well, it is heavily characterized by the Sophos acquisition, the balance sheet total has expanded in all aspects, but that's the only major deviation to last year. The equity ratio is now at 39% via profits, we will now go above 40% throughout the year, but this is the starting point after the Sophos inclusion, which brings me to slide 16. Our workforce and utilization numbers. On the employee number, we are now more than 10,000 people, 10,626, which is 16% up versus the end of 2023. And when you compare the numbers, GFT organic growth was pretty low over the last 12 months. Then we added targens, which you mainly see in Q2 as a spike. And then we added Sophos in Q1. So currently, the employee numbers at GFT from the old organization is in line with revenue, small growth on the revenue side, no growth on the people side. Second bullet point, number of contract is more or less unchanged. Now the graph in the middle, the utilization came in at 89.9%, which is a bit better than in Q1 last year, but it was more deviating between our countries. So Angl-Saxon markets had issues on the utilization in some of our Southern European, Southern American markets and very high utilization, a nonoptimal combination, and that's why the margins suffered somewhat. We believe Q2 will look similar. It will be been below 90% utilization. And then we will again be above the -- ideally above the 91% utilization mark for the second half. And the last KPI on the very right, the attrition rate, it went further down 9.8%. It's the lowest number that me and Marika have ever seen in our more than 20 years at GFT. Even during Covet, it was above 10%, but we do see it stabilize now. So it doesn't look like it will further go down, maybe just a notch. So we should see it rebound also in the second half, just as we see business rebound in the second half of '24. Back to...

[Marika Lulay, executive]

Thanks, Jochen. Then let's go to the last slide, which is slide #18. So the outlook for 2024 is actually not surprised. It reconfirms the outlook we gave last time. Let me go a bit into detail. We expect a revenue growth year-over-year of 15%. Adjusted EBIT should grow by 16%. And finally, EBIT should grow by 6%. With that, we plan to achieve an EBIT adjusted margin of 9.4%, which is an improvement over last year by 15 basis points. Midterm, just to repeat, we do to aim at a 10% margin. Like in Q1 and Jochen also hinted towards, we do see our clients being cautious in Q2, especially in the Anglo-Saxon markets, but we're still confident that we will see more organic growth in the second half than in the first half. The reason for that is that we have a promising pipeline in Asia. We should turn around it now into [ order ] entry in Q2. Europe overall is very stable, and the market which is already in a brave mode now is Latin America, especially in Brazil, where we see a lot of demand. And with that, I'll open our Q&A session. We're happy to take your questions.

[Operator]

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]

[Andreas Herzog, executive]

So we do see we have questions. Let's get started. Andreas Wolf first.

[Operator]

Yes. So our first question is from the line of Andreas Wolf from Warburg Research.

[Andreas Wolf, analyst]

I'm just curious about the further development of the year. Do you already see clients kind of reserving capabilities within GFT for the projects that they plan to carry out? Usually the visibility for the second half of the year should be better by now. Maybe you could provide some comments on that. Are clients still acting on short notice? So that would be kind of my first question, that would be helpful. And the second is related to the competitive environment. Apparently, the peers faced a similar market environment with sluggish client demand. Do you see more competition or competitors being more aggressive with regard to pricing, et cetera, trying to win tenders?

[Marika Lulay, executive]

So let me go -- let me answer you on your first question. Well, reserving capabilities, I think this we only saw in '21/'22, where clients became utterly nervous that we might not serve them if they don't book us early enough. I would rather say investors pack ‘23 is largely [indiscernible] before, clients mostly in the banks call for 3-month purchase orders. Nevertheless, we do not see big programs stopping or ending anymore. Again, we saw that in Q1, things rather go forward. And I connected a bit with your second question. Competition is also protecting margins. That's what we see. Everybody tries to protect margins, which is positive. Having said that, clients do use the moment and use the markets to go for vendor consolidation. So they issue large RFPs, which obviously can always go into both directions. It's an opportunity for us to enlarge our footprint in a client, and it's a threat to lose a client. So I would say clients rather use it for vendor consolidation. Obviously, on the back of that, they try to negotiate prices, but in return for bigger volumes. This, we see, especially in the Anglo-Saxon markets. On the rest, it's, I would say, rather normal [indiscernible]

[Operator]

Our next question is from the line of Sven Sauer from Kepler Cheuvreux.

[Sven Sauer, analyst]

I have 2 questions. The first one is on the personnel costs. So they increased more than sales. But if I remember correctly, both acquisitions, so Sophos and targens were margin accretive. So which line in the P&L then translates to this rise in the personnel cost as a percentage of sales? And the second question would be why is there no guidance range? Are you very confident that this is the very low end of the guidance that you will be able to deliver this year?

[Jochen Ruetz, executive]

So let me start with the personnel cost. That's absolutely right. We grow the personnel cost in Q1 stronger than sales, and that is then visible in the -- in all margins, starting from EBITDA margin. Indeed, we expect Sophos to be margin accretive throughout the year, it was not in Q1. So the Q1 margin was in line with the GFT margin. They also started a bit weaker into the year as we have seen in some of the GFT entities and the same is true for targens. No major license deals because there's a product business inside in the first quarter and therefore, they all behave somewhat like the rest of GFT for this first quarter. It doesn't mean it will not change. Especially on the software side, we see a positive trend on revenues and margins throughout the year. And on license sales, as always, there's a bit of ups and downs. That is why we will see the ratio that we looked at on the P&L slide improve latest in Q3, Q2, probably not so much, but in Q3, we will see it improve due to GFT entities improving, Sophos improving and also targens contributing more. So it will be a joint effort this year.

[Marika Lulay, executive]

This is with regard to your question, why we do not give ranges guidance. It's obviously an option, and we have done that in some years that we went [ to ] our range. If – especially, if let's say, the variance was pretty big, so in order not to play around with a point guidance and then being always in territories to discuss and I'll talk -- this guidance for this year, especially this time of the year, when we see more pipeline is well backed by a qualified pipeline. Things can always go wrong for the future; things can go better. So it is a point guidance, which we consciously have chosen, again, fully backed by qualified pipeline and let's see how it goes. We do not see a big advantage in giving a range because it would have been -- therefore, your speculation is right, maybe a rather small range. And then we see no real reason. And going for a big range, we feel that it would rather confuse the market and maybe the market would see it more risky than it is or more optimistic than it is. And therefore, we rather want to keep the volatility under control.

[Operator]

The next question is from the line of Simon Keller from Hap

[Simon Keller, analyst]

I was wondering why the U.S. market is so weak also for peers, especially compared to the European market? What do you think here? And then do you see any tangible signs of the overall market improvement in the U.S.? Or could the market even further deteriorate?

[Marika Lulay, executive]

Mr. Keller, can you repeat the second question, please?

[Simon Keller, analyst]

Of course. Do you see any tangible signs of the market improvement? Or could the market even further deteriorate.

[Marika Lulay, executive]

So why is the U.S. market so weak -- it all started, I would say, in '23 with the bankruptcy of Silicon Valley Bank, which put a lot of pressure to the fintech market. And the fintechs are the big attackers to the traditional banks. And then the fintechs struggled. In a certain way, the large banks felt a bit more relaxed, just one part of the story. Another part of the story, the interest rates went up. You might say, "Oh, but that was good for the banks." Yes, and they simply delivered more profits to their shareholders and got their -- manage their own shares. And that was the second pillar. So instead of using that for investments, they saw no reason to do further investments. So they rather optimize that. Then third pillar, and I come to the fourth. The third pillar is that their plans were suffering the higher interest and the steep change of the interest. So therefore, they have actually more pressure on that. And that also, let's say, limited a bit the Anglo-Saxon market as such across sectors, not just in banking, to be a bit more cautious on investments because all the return on invest became a bit more difficult with higher interest rates. And the fourth pillar, the fourth reason, especially in the banking business is down to technology. In the year '21, '22, especially after COVID, the banks were heavily investing into cloud. Everybody was moving to the cloud. It was cloud, cloud, cloud. We've got to do it. We've got to do it. And they just went on and they invested a lot and moved on. Beginning '23, and this all came together, they realized that, on one hand, some cloud programs did not deliver the return on the investment they thought. Second, they realized, "oh, I cannot just to point solutions. I rather should do a more -- have a broader approach, a more strategic approach." So if you take all this together, it made -- especially the big banks, the Tier 1 banks to say, "Oh, let's probably review our strategy." Then AI obviously came into the plate in '23. And this all then made the banks also shifting budgets and reviewing the whole thing. We -- in '23, towards mid and mid '23 end '23, I thought -- we all thought that this was just a ‘23 topic and that they would come back on investment mode again, beginning '24, but they still continue to be cautious. The interest rate is not -- has not yet been reduced. So everybody is waiting for that. So it's a bit of a -- I would not call it a wait and see, but a bit of wait and see, which is still going on. Nevertheless, the banks have made their homework, they have reviewed their programs. We do see that the Tier 1 banks are issuing large RFPs, really large for vendor consolidation. So they use this momentum. So the ones who win that will be the ones who will see growth, the ones who lose it will see reductions. So your question, please say whether it could go up or go down, I must say both. We obviously are confident and the whole team is working hard that we are on the winning side. That is what the team is positioning itself and we're working on that. As usual, a market which is, let's say, changing its behavior creates uncertainty, but it's also a wonderful momentum, a wonderful moment to, let's say, gain access to clients or to markets we haven't yet gained. So overall, we remain positive for the second half.

[Simon Keller, analyst]

And maybe a follow-up question, if I may, and that is, with regard to the U.S. market, do you factor in that it does return to some sort of growth in H2? Or is all -- do you basically assume for the guidance as well that U.S. remains at roughly current levels and this is overcompensated by the growth areas that you mentioned, i.e., Asia, Europe and Latin America?

[Jochen Ruetz, executive]

We pick that one up. So we don't see major growth in Q2, slight growth. And then we see continued growth in 3 and 4, which will be relevant again, double digit. Don't forget, U.S., although we would like it to be a bigger market for GFT, is not yet, right? So the impact of this U.S. effects are not as big for us than for some of the players who are very focused on the Anglo-Saxon market. So there will be a positive pickup in the second half, that is remaining risk that the pickup will be weaker or maybe upside that it will be stronger. The overall impact on GFT is limited because of the size of the U.S. market in our portfolio.

[Operator]

We have our next question from the line of Ned Hinkel from Pareto Securities.

[Knud Hinkel, analyst]

I have just 3 questions, if I may. First, yes, on the second half of the year, so that's a $1 million question, I think -- and you are more -- that is you're optimistic for the second half of the year. My naive view on attrition would be that cost of your personnel is very close to the market, I guess, that -- so a low attrition means that the market is not so vibrant and high attrition means a very good prospect. And it seems to be at a very low level. So the -- how does that go together? Or is just my reading here a little bit wrong. So that would be my first question. Second question on your most recent acquisition. Did you see -- have you seen some surprises after you are now owners of the asset of the company, be it positive, be it negative. So your first impression would be would be appreciated? And last question, more just to -- for the model, what do you plan for capacity adjustments during the year? How much cost should we expect there? And how much for underutilization during the year?

[Jochen Ruetz, executive]

So let me start with the last one, capacity adjustments. You have seen that in Q1, we were a bit below last year. We will have made some more adjustments in the second half. Overall, last year, it was EUR 5.5 million. I believe we will be somewhat below that number for the full year. That's our plan. So between EUR 4 million and EUR 5 million is what we currently foresee, which is above normal year GFT, which would be roughly EUR 2.5 million, just the hygiene classic capacity adjustments that we do across the world to 2.5% normal this year, 4.5-ish last year, 5.5% shows improvement. But still, we have some homeworks especially in those Anglo-Saxon markets, where currently, the utilization is hurting us.

[Marika Lulay, executive]

And to your first question, I may say you are very right. Attrition is a sign how vibrant the market is. Obviously, in order to have a more deeper conversation you would have to go into each market. It usually rise -- mature markets like Germany and U.K. are usually anyway low in attrition -- of Spain, markets like Brazil, U.S. are, by definition, higher on nutrition, but all markets went down. That's what I can share. And especially the high attrition markets went heavily down. It's a matter of fact as we also have a bit of, we call it bench, which means people which are not utilized -- and obviously, there are some competitors who have a huge bench. That, on the other hand, makes people not leaving, not resigning. When we had the years '21, '22, people were resigning not even having a job because they knew they would get a job. So when they get bored on a project or they didn't like it, they just -- they just throw the towel. This does not happen anymore. And although there are less job openings, when you follow the announcement in the U.S., I think they have the lowest level of job opening [Audio Gap] it's true it exists. But there's also bench. There's also price competition, which I think if there would be a total war of talent, it would have no price competition. And I'm still waiting for this moment, maybe in heaven I'll see that, I don't know.

[Jochen Ruetz, executive]

So let me add one technical element to this. You look at the 12 months average in the slide that we show. So it is a 12-month number. When we do a monthly view at this, we see it has already stabilized, and we believe the attrition will come back somewhat in the coming months, indicating stronger markets also from that KPI for the markets in the second half.

[Marika Lulay, executive]

We always said that we felt very comfortable between 10% and 15% and 10 on the lower end, 15 [indiscernible] comfortable. You may know we had times in '21, '22, [indiscernible] '20, which we really became concerned because cost for recruiting became heavy, et cetera. So the 10% is on the real low end. And again, your analysis is right. Our expectation is it stabilizes now, and it should. Question to Sophos acquisition, have we seen any surprise? No, short answer. Absolutely not. We're very happy we've done the acquisition. The integration from a cultural perspective, from a collaboration perspective is very good. We have won already and we are in May, clients together. And by the way, not in Americas, but for example, we work together in Hungary. So we use skills from Colombia, with our teams from Poland, in Hungary for a new client or a brand new won client. It's a very good collaboration, very open. We see a lot of synergies. So very well underway. All right.

[Knud Hinkel, analyst]

Yes, just one question seems open for me that the question, how much do you pencil in for underutilization for '24. What's your expectation?

[Marika Lulay, executive]

That's the capacity adjustment cost question.

[Jochen Ruetz, executive]

That will be EUR 4.5 million I mentioned, right? [indiscernible] 5.5, this year, 4.5, normal years, 2.5, so we are still [ elevated ].

[Knud Hinkel, analyst]

I see. Okay. Then I got that wrong.

[Jochen Ruetz, executive]

Maybe there are still questions. But we have nobody…

[Operator]

[Operator Instructions] Ladies and gentlemen, as there are no further questions, I would now like to turn the conference back over to Mr. Andreas Herzog for any closing remarks.

[Andreas Herzog, executive]

Well, thank you very much, operator. And thank you very much, ladies and gentlemen, for attending our call. It seems we have all answered your questions. So if there are further questions, might [indiscernible], please come through. so long and goodbye. Have a good day.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.