REPORT ON OPERATIONS
Consolidated Half-Year Financial Report as at 30/06/2024
Report on operations
STAR7 S.P.A.
Via Alessandria 37B, 15122
Valle San Bartolomeo (AL) - Italy
Share capital € 599.340 fully paid up
Business Register 01255170050 - REA number AL - 208355
Tax ID code and VAT number 01255170050
Report on Consolidated Half-Year Report as at 30/06/2024
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Report on operations
Dear Shareholders,
The Consolidated Half-Year Financial Report as at 30/06/2024 shows a profit of €1,498,563 (€989,276 at 30/06/2023) in what was a very complex period, characterised by ongoing high uncertainty.
Regardless, the results achieved are the best in recent years.
Sales amounted to €60.4 million, up 18.7% compared to the previous year, with an EBITDA of €8.6 million (14.2% of revenue).
The market has therefore rewarded STAR7's ability to ensure a high level of service in a highly complex global environment; the Group has succeeded in consolidating its market position
thanks to the quality and reliability of its services. The "fundamental" factors that characterise the Company's operations have proven to be crucial: breadth of professional skills; ability
to offer technologically advanced solutions; orientation towards efficiency with the right amount of
flexibility; wide range of services to meet market needs.
The results of this first half of 2024 confirm that our "Integrale7" business model continues to work effectively, offering us the ability to cross-sell additional services to newly acquired customers.
Lorenzo Mondo
Founder and Chief Executive Officer of STAR7 S.p.A.
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Company situation
STAR7 provides an integrated range of product-information services, from product and process engineering support to the creation and management of technical and marketing content, translation, printing and virtual experience.
The Group has continued its programme to enhance its structure and reinforce the core values of the parent company, in line with the project initiated prior to listing. This includes strengthening and expanding the services provided, introducing innovative solutions, and promoting and encouraging its skilled workforce to adapt to a changing market, which is now leaning towards solutions that incorporate AI.
The research and development activities in the field of AI, adopting a technology- agnostic approach, have enabled continuous evaluation of leading, emerging, and promising technologies for the target markets. This has led to the development of a know-how that is conducive to creating flexible solutions, which are not tied to any particular platforms.
This strategy, alongside the development of demonstrative Proof of Concepts with leading industry clients, has resulted in the creation of a new suite of AI- driven services and applications (known as "7AI"), encompassing both language technologies and the generation and analysis of content.
This new suite of services enables the STAR7 Group to provide AI-based solutions that are natively multilingual in the areas of Virtual Assistants, Customer Support, and Academy Training.
In-house "human" capabilities used in training artificial intelligence, aimed at enhancing its reliability and responsiveness, are an asset in this new suite of services.
Research and development continues to focus on Virtual, Immersive and Augmented Reality by developing products and solutions that, with progressive improvements thanks to generative AI technologies, cater to the growing need for virtualisation within customer businesses.
Today, the STAR7 Group is able to deliver increasingly cutting-edge solutions in the areas of Virtual Training, Virtual Showrooms and Product Experience, by making the most of its technical information management skills acquired over time through engineering and technical authoring.
Operating Highlights
The table "Adjusted reclassified consolidated income statement" shows the main adjusted earnings indicators of the STAR7 Group for the first half of 2024, compared with the equivalent values for the first half of 2023.
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Report on operations
The adjusted measures are not sanctioned by the Italian Accounting Standards (IT GAAP) issued by the OIC. The Group believes that these adjusted measures provide useful information to management and investors to evaluate operating performance and compare it to companies operating in the same sector, while providing an additional view of the results.
In line with the Group's desire to provide additional disclosures and better comparability, the consolidated figures have been adjusted to take into account integration and restructuring costs mainly related to the C.A.A.R. S.p.A. and S.T.I. s.r.l. business units, as further specified in the following paragraphs.
Please also note that the statutory and management figures reflect the earnings of the C.A.A.R. S.p.A. and S.T.I. s.r.l. business units.
As of 1 January 2023, two lease contracts are operational for business divisions of the companies C.A.A.R. S.p.A. (registered office in Turin, via Treviso 36) and S.T.I. s.r.l. (registered office in Bolzano, via Buozzi 14/16).
These companies are active in the same market as STAR7 but specialise in important complementary segments. The leases are preparatory to the possible future acquisition of the two business divisions.
The above companies are strategic and complementary to the development of the engineering and defence business, with offices located both in Italy (Turin and Bolzano) and abroad (Brazil and Serbia). Given the financial situation of the two companies, a business leasing contract was used in order to minimise legal, financial and operational risks. Meanwhile, the judicial liquidation of both companies has been ordered and STAR7 has proposed an irrevocable offer for the purchase of both business units in a protected procedure scheduled for October 2024.
Operating performance
In the first half of the year, STAR7 achieved a growth in revenues of 18.7% that is extremely significant not only due to its scale but also its quality, considering the purely organic nature of the increase in revenues and the significant contribution offered by the Engineering and Product Knowledge segments, against a backdrop of significant progress in the most relevant Service Lines.
Behind these numerical results are some fundamental forward steps that have been made in recent months:
- the completion of the CAAR integration process: the clear benefits in terms of the increase in half-year revenues that have been achieved in the Engineering service line in Brazil are just part of the positive repercussions that STAR7 expects as a result of the finalised integration process.
- the internationalisation of the business: with a view to continued international expansion, STAR7 has opened its new operating office in India, in Hyderabad, enabling it to cover even more effectively the localisation services needs of one of its most important Global Content clients.
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Adjusted reclassified consolidated income statement
30/06/2024 | 30/06/2023 | Change | Change % | |
Net revenues | 60,365,165 | 50,860,071 | 9,505,094 | 18.7% |
EBITDA adjusted (*) | 9,163,586 | 7,476,430 | 1,687,156 | 22.6% |
Adjusted EBITDA % | 15.2% | 14.7% | ||
EBITDA | 8,589,438 | 6,932,005 | 1,657,433 | 23.9% |
EBITDA % | 14.2% | 13.6% | ||
EBIT | 4,499,662 | 3,106,965 | 1,392,697 | 44.8% |
R.o.S. % | 7.5% | 6.1% | ||
Financial Management | -1,632,337 | -1,193,798 | -438,539 | 36.7% |
EBT | 2,867,325 | 1,913,167 | 954,157 | 49.9% |
Taxes | 1,368,761 | 923,891 | 444,870 | 48.2% |
Consolidated net income | 1,498,563 | 989,276 | 509,287 | 51.5% |
Consolidated net income attributable to minority interests | 549,247 | 206,311 | 342,936 | 166.2% |
Consolidated net income attributable to the Group | 949,316 | 782,965 | 166,351 | 21.2% |
*Adjusted EBITDA is adjusted to remove theintegration and restructuring costs of €574 thousand mainly related to the business units of C.A.A.R. S.p.A. and S.T.I. s.r.l.
Group Revenues for the first half of 2024 amounted to € 60.4 million, an increase of approximately 18.7% compared to of €50.9 million in the first half of 2023.
The key factor in the progress achieved in the first six months of 2024 can be identified in significant organic growth in the USA and Brazil, driven by the Product Knowledge and Engineering service lines.
STAR7 has also confirmed its ability to activate all available organic growth levers, through the continuous acquisition of new customers and an effective cross- selling and upselling process in the services offered to existing customers.
Service Lines as a % of Group Revenues | 1H2024 | 1H2023 | FY2023 |
Global Content | 34.1% | 35.9% | 35.9% |
Experience e Product Knowledge | 34.1% | 29.0% | 29.0% |
Printing | 11.3% | 16.7% | 15.5% |
Engineering | 20.5% | 18.4% | 19.6% |
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The geographical distribution of Revenues for the first half of 2024 (with a weight of the international market equal to approximately 49%, compared to approximately 43% in the first half of 2023) is testament to the success of the strategy for the increasing internationalisation of STAR7.
Geographical breakdown of Group revenues | 1H2024 | 1H2023 | FY2023 |
ITALY | 51.2% | 57.2% | 53.2% |
USA | 24.5% | 21.6% | 22.8% |
BRASIL | 18.1% | 14.1% | 17.1% |
OTHERS | 6.2% | 7.2% | 6.9% |
EBITDA
In the first half of 2024, STAR7 Group EBITDA was €8.5 million (EBITDA Margin stood at 14.2%), while Adjusted EBITDA (adjusted for integration and restructuring costs mainly related to the CAAR Group business unit) reached €9.2 million with Adjusted EBITDA Margin of 15.2% (+50 bps compared to 14.7% in the first half of 2023).
The results for the first half of 2024 were achieved thanks to a high-quality order book and efficiency initiatives to maximise the profitability of current orders.
EBIT
The EBIT of the STAR7 Group amounted to €4.5 million, an increase of 45% compared to €3.1 million in the first half of 2023.
Profit for the period
The STAR7 Group reported a Net Profit of €1.5 million, an increase of about 50% compared to €1 million in the first half of 2023.
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The M&A transactions carried out to date have generated net goodwill as at 30 June 2024 in the amount of €28 million, resulting in amortisation of €2 million, as better detailed in the Notes to the Financial Statements. Gross of this amortisation, in line with the representation of the main international standards, the Net Profit for the first half of 2024 would have been €3.5 million.
Consolidated balance sheet data
The reclassified balance sheet compared with the previous year's figures is as follows (in Euros):
30/06/2024 | 31/12/2023 | Change | Change % | |
Net intangible fixed assets | 36,113,112 | 38,215,878 | -2,102,766 | -5.5% |
Net property, plant and equipment | 8,781,775 | 9,194,650 | -412,875 | -4.5% |
Equity investments and other financial fixed assets | 536,273 | 277,808 | 258,465 | 93.0% |
Non-current assets | 45,431,159 | 47,688,336 | -2,257,177 | -4.7% |
Inventories | 2,554,312 | 2,541,276 | 13,036 | 0.5% |
Trade receivables | 34,488,258 | 37,172,859 | -2,684,601 | -7.2% |
Receivables due from associated and | 537,845 | 855,010 | -317,164 | |
unconsolidated subsidiaries | -37.1% | |||
Other receivables | 7,719,190 | 6,149,817 | 1,569,373 | 25.5% |
Accrued income and prepaid expenses | 2,810,325 | 1,714,080 | 1,096,245 | 64.0% |
Current assets | 48,109,930 | 48,433,042 | -323,112 | -0.7% |
Trade payables | -12,274,865 | -8,678,976 | -3,595,889 | 41.4% |
Payables to associated companies and | -833,092 | -442,162 | -390,930 | |
unconsolidated subsidiaries | 88.4% | |||
Payments on account | -10,684 | -39,885 | 29,202 | 0.0% |
Tax and social security payables | -4,131,214 | -3,907,864 | -223,350 | 5.7% |
Other payables | -5,472,450 | -3,824,696 | -1,647,754 | 43.1% |
Accrued expenses and deferred income | -1,929,005 | -2,189,703 | 260,699 | -11.9% |
Current liabilities | -24,651,310 | -19,083,287 | -5,568,024 | 29.2% |
Working capital | 23,458,620 | 29,349,755 | -5,891,136 | -20.1% |
Employee severance indemnity | -6,612,755 | - 6,368,713 | -244,043 | 3.8% |
Taxes and social security payables (after one year) | - | - | 0 | 0.0% |
Other medium- and long-term liabilities | -1,076,727 | -1,040,398 | -36,330 | 3.5% |
Non-current liabilities | -7,689,483 | -7,409,110 | -280,372 | 3.8% |
Invested Capital | 61,200,296 | 69,628,981 | -8,428,685 | -12.1% |
Net equity | -31,376,275 | -31,873,399 | 497,124 | -1.6% |
Short-term net financial position | -2,623,096 | -10,693,185 | 8,070,089 | -75.5% |
Medium/long-term net financial position | -27,200,925 | -27,062,397 | -138,528 | 0.5% |
Equity and net financial debt | -61,200,296 | -69,628,981 | 8,428,685 | -12.1% |
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NON-CURRENT ASSETS
Non-current assets amounted to €45.4 million and decreased by a total of €2.3 million mainly due to:
- depreciation and amortisation (total €4.0 million); partially offset by
- investments in intangible assets (€1.1 million) and property, plant and equipment (€0.6 million);
- reclassification of financial derivative assets and other non-current financial assets (€0.3 million) that were not included in this macro-item as at 31-12-2023.
Net intangible assets amounted to €36.1 million and mainly included:
- Goodwill (€27.9 million), mainly related to Localeyes (€23.2 million);
- Industrial patents and intellectual property rights (€1.7 million);
- Other (€6.4 million): this item includes leasehold improvements (€2.0 million), listing costs (€0.9 million) and other expenses (€1.8 million) including the Smart7, Next, Recharge, projects etc., and the integration of CAAR and STI.
The item under consideration decreased by €2.5 million as a result of depreciation and amortisation for the period totalling €4.0 million partially offset by investments of €1.1 million which mainly concerned the new Smart7, Next, and Recharge projects.
Net property, plant and equipment amounted to €8.8 million and included: i) property (€3.7 million);
- plant and machinery (€3.1 million);
- other assets (€1.9 million).
The item under consideration decreased by €0.4 million mainly due to the depreciation of €0.7 million for the current period, net of ordinary investments of €0.6 million and exchange rate conversion differences.
Equity investments and other financial fixed assets amounted to €0.5 million and included:
- positive mark-to-market of financial derivative assets (€0.2 million);
- security deposits (€0.2 million);
- investments in the associate IAM.DEV and other minor securities.
Working capital amounted to €23.5 million, down by €5.9 million.
The change is mainly attributable to the optimisation of working capital management:
- trade receivables were down €2.7 million (DSO improved from 131 at 31.12.2023 to 111 at 30.06.2024) and
- trade payables increased by €3.6 million (DPO improved from 68 at 31.12.2023 to 92 at 30.06.2024).
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Other items in working capital mainly related to:
- Other receivables (€7.7 million) which include tax receivables for direct and indirect taxes (€2.6 million), deferred tax assets (€0.7 million), amounts advanced by STAR7 and to be recovered on closing of the future acquisitions of CAAR and TSI (€1.8 million of which €0.6 million as a security deposit to guarantee the competitive auction) and SDS (€0.5 million) as a deduction from the acquisition price.
- Accrued income and prepaid expenses (€2.8 million) increased by €1.1 million mainly as a result of early discounts granted to important customers in the Automotive sector against the renewal of multi-year contracts;
- Other payables (€5.5 million) related mainly to current and deferred salaries to employees (€5.0 million).
- Tax and social security payables (€4.1 million)
- Accrued expenses and deferred income (€1.9 million) decreased by €0.3 million due to lower advance revenues compared to 31/12/2023.
Non-current liabilities of €7.7 million relate to the provision for severance pay of €6.6 million and to various provisions for risks and expenses (provision for employees' leaving entitlement of €0.3 million, deferred tax fund of €0.3 million, other risk provisions of €0.5 million).
Financial highlights
The net financial position as at 30/06/2024 was as follows (in Euro):
30/06/2024 | 31/12/2023 | Change | |
Bank deposits | 17,299,102 | 8,077,810 | 9,221,292 |
Cash and other valuables on hand | 9,072 | 1,209,615 | -1,200,543 |
Cash on hand (a) | 17,308,174 | 9,287,425 | 8,020,749 |
Due to banks (within one year) | -13,505,296 | -13,678,433 | 173,137 |
Payables due to other financial institutions (within | - 2,378,823 | -2,267,614 | -111,209 |
one year) | |||
Bonds (within one year) | -4,047,151 | -4,034,563 | -12,588 |
Short-term financial liabilities (b) | -19,931,270 | -19,980,610 | 49,340 |
Net short-term financial position (a-b) | -2,623,096 | -10,693,185 | 8,070,089 |
Due to banks (beyond the next financial year) | -11,068,237 | -8,936,946 | -2,131,290 |
Due to other financial institutions (after one year) | -1,755,314 | -2,001,845 | 246,531 |
Bonds (after one year) | -14,377,374 | -16,404,602 | 2,027,228 |
Financial receivables | - | 280,997 | - 280,997 |
Medium and long-term net financial position | -27,200,925 | -27,062,397 | -138,528 |
Net financial position (a-b-c) | -29,824,021 | -37,755,582 | 7,931,561 |
The net financial position as at 30 June 2024 was €29.8 million (€37.8 million at 31
December 2023). This result confirms the effectiveness of the strategies
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