Interim / Quarterly Report • Aug 14, 2023
Interim / Quarterly Report
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| Q2 | Q2 | YoY | Q1 | QoQ | |
|---|---|---|---|---|---|
| 2023 | 2022 | Change | 2023 | Change | |
| kEUR | kEUR | % | kEUR | % | |
| Revenue | 226,835 | 210,049 | 8.0% | 229,549 | -1.2% |
| Cost of revenues | 169,427 | 149,903 | 13.0% | 168,168 | 0.7% |
| Gross profit | 57,464 | 60,190 | -4.5% | 61,439 | -6.5% |
| Adjusted EBITDA | 28,927 | 40,170 | -28.0% | 31,411 | -7.9% |
| Revenue by country | |||||
| Germany | 47,490 | 41,856 | 13.5% | 45,691 | 3.9% |
| US | 78,762 | 84,034 | -6.3% | 85,084 | -7.4% |
| Revenue by industry | |||||
| Automotive, Manufacturing and Industrial | 49,126 | 40,032 | 22.7% | 45,744 | 7.4% |
| Energy, Utilities and Building Automation | 17,939 | 13,999 | 28.1% | 17,610 | 1.9% |
| Financial Services and Insurance | 30,827 | 27,184 | 13.4% | 32,360 | -4.7% |
| Horizontal Tech | 15,172 | 20,935 | -27.5% | 17,676 | -14.2% |
| Life Sciences and Healthcare | 17,777 | 15,606 | 13.9% | 16,887 | 5.3% |
| Management Consulting and Business Information | 14,918 | 15,739 | -5.2% | 16,289 | -8.4% |
| Public, Non-profit and Education | 15,039 | 17,335 | -13.2% | 20,534 | -26.8% |
| Retail and CPG | 31,413 | 27,566 | 14.0% | 29,380 | 6.9% |
| Telecom, Media and Entertainment | 13,732 | 12,110 | 13.4% | 12,798 | 7.3% |
| Travel and Logistics | 20,891 | 19,543 | 6.9% | 20,271 | 3.1% |
| H1 | H1 | YoY | |
|---|---|---|---|
| 2023 | 2022 | Change | |
| kEUR | kEUR | % | |
| Revenue | 456,384 | 395,581 | 15.4% |
| Cost of revenues | 337,595 | 285,121 | 18.4% |
| Gross profit | 118,903 | 110,549 | 7.6% |
| Adjusted EBITDA | 60,338 | 69,144 | -12.7% |
| Revenue by country | |||
| Germany | 93,181 | 80,922 | 15.1% |
| US | 163,846 | 154,706 | 5.9% |
| Revenue by industry | |||
| Automotive, Manufacturing and Industrial | 94,870 | 75,395 | 25.8% |
| Energy, Utilities and Building Automation | 35,549 | 27,321 | 30.1% |
| Financial Services and Insurance | 63,187 | 50,413 | 25.3% |
| Horizontal Tech | 32,848 | 39,759 | -17.4% |
| Life Sciences and Healthcare | 34,664 | 29,876 | 16.0% |
| Management Consulting and Business Information | 31,206 | 27,847 | 12.1% |
| Public, Non-profit and Education | 35,573 | 33,421 | 6.4% |
| Retail and CPG | 60,794 | 51,880 | 17.2% |
| Telecom, Media and Entertainment | 26,531 | 23,084 | 14.9% |
| Travel and Logistics | 41,161 | 36,587 | 12.5% |
| H1 | H1 | |
|---|---|---|
| 2023 | 2022 | |
| % | % | |
| Revenue concentration (by customer) | ||
| Top 5 | 14.3% | 15.4% |
| Top 6-10 | 9.4% | 10.6% |
| Outside of Top 10 | 76.3% | 74.0% |
| H1 | H1 | ||
|---|---|---|---|
| 2023 | 2022 | Change | |
| kEUR | kEUR | % | |
| North America | |||
| Revenue | 167,232 | 155,186 | 7.8% |
| Cost of revenues | 124,539 | 108,447 | 14.8% |
| Gross profit | 42,693 | 46,739 | -8.7% |
| Central Europe | |||
| Revenue | 126,369 | 110,624 | 14.2% |
| Cost of revenues | 94,787 | 83,190 | 13.9% |
| Gross profit | 31,582 | 27,434 | 15.1% |
| Rest of World | |||
| Revenue | 100,439 | 82,274 | 22.1% |
| Cost of revenues | 76,936 | 59,371 | 29.6% |
| Gross profit | 23,503 | 22,903 | 2.6% |
| Rest of Europe | |||
| Revenue | 62,343 | 47,497 | 31.3% |
| Cost of revenues | 41,333 | 34,113 | 21.2% |
| Gross profit | 21,125 | 13,473 | 56.8% |
Gross profit, gross margin and Adjusted EBITDA are neither required by, nor presented in accordance with, IFRS. Non-IFRS measures should not be considered in isolation or as a substitute for results under IFRS.
Gross profit is calculated on the basis of total performance which is sum of revenue and own work capitalized. Rounding differences may arise when individual amounts or percentages are added together.
| Section A 6 | ||
|---|---|---|
| Interim group management report6 | ||
| 1. | Overview7 | |
| 2. | General economic and industry conditions 7 | |
| 3. | Financial performance 8 | |
| 4. | Financial position as at the balance sheet date 10 | |
| 5. | Non-financial KPIs 12 | |
| 6. | Outlook for 2023 12 | |
| 7. | Risks and opportunities 12 | |
| 8. | Developments after June 30, 2023 13 | |
| Section B 14 | ||
| Interim condensed consolidated financial statements14 | ||
| Interim condensed consolidated statements of financial position 16 | ||
| Interim condensed consolidated statements of comprehensive income 18 | ||
| Interim condensed consolidated statements of changes in equity 20 | ||
| Interim condensed consolidated statements of cash flow 22 | ||
| Notes to the interim condensed consolidated financial statements 23 | ||
| Section C52 | ||
| Important information52 | ||
| Responsibility statement 53 | ||
| Financial calendar 54 | ||
| Legal notice 54 |
for the half-year ended June 30, 2023
Nagarro's superior client experience and its strategic diversification continued to deliver resilient growth in the face of prolonged global economic challenges. Though a few of our projects had to scale back, many others expanded in their place, and beyond. Illustratively, the number of clients generating over 1 million Euro in revenue in the trailing twelve months – an important measure of future revenue growth potential – rose to reach 168 on June 30, 2023, compared to just 131 a year ago. In the last decade, Nagarro has continuously invested to diversify across geographies, industries and technologies on our way to building one of the world's leading technology companies. These years of preparation allowed us to re-deploy our resources from weaker markets and topics to more promising ones. Our long-term focus on superior client experience driven by differentiated ways of working, exemplified by an NPS of over 60, drove client stickiness and loyalty even in a slow demand environment for digital specialists.
Nagarro's H1 2023 YoY revenue growth over H1 2022 was 16.5% in constant currency, and 15.4% in Euro terms. In Q2 2023, revenue grew 10.7% YoY in constant currency and 8.0% YoY in Euro terms. Organic YoY revenue growth for the quarter was 8.7% in constant currency, which translated to 6.1% organic YoY revenue growth in Euro terms. Compared to Q1 2023, revenue declined 0.3% QoQ in constant currency, and declined by 1.2% QoQ in Euro terms.
A single Horizontal Tech client pulling its business from us due to a special business context accounted for a decline in quarterly revenues of 2 million Euro from Q1 2023 to Q2 2023 and a decline in half-yearly revenues of over 8 million Euro from H1 2022 to H1 2023. Revenues from that client were now less than 1 million Euro in Q2 2023. We do not see the special circumstances of this client being replicated anywhere else in our portfolio.
Adjusted EBITDA as a percentage of revenue was 13.7% in Q1 2023 and 12.8% in Q2 2023, with a resulting H1 2023 number of 13.2%. Adjusted EBITDA was weighed down by a significant amount of excess production capacity, which management estimates cost the company well over 4% of revenue in H1 2023. The company took steps to rationalize costs, including salary restructuring and gradual headcount rationalization. The impact of these changes will come through in full force in H2. In deciding on the severity and speed of cost cuts, and thus on target margins for 2023, we struck a judicious balance between short-term profitability on one hand versus our consistent emphasis on growth, which requires us to preserve our reputation as an employer of choice for when demand surges back.
Nagarro has been investing for years in developing advanced capabilities around data and Artificial Intelligence. In H1, Nagarro took additional steps to put data and AI at the heart of all its client engagements. The company conceptualized and softlaunched its "Fluidic Enterprise AI" offering targeted at its leading clients, leveraging the company's existing "Enterprise Agile" engagement and "Thinking Breakthroughs" innovation methodologies. To advise and guide this initiative, Dr. Vishal Gaur, Dean of the SC Johnson Graduate School of Management at Cornell University and professor of information, technology and operations management, was appointed to the company's Supervisory Board.
The company continued to expand its reach and capabilities via M&A. Nagarro consolidated the accounts of the Infocore group (Germany, USA, UAE and India) from April 1, 2023, and of MBIS (Turkey) and APSL (Spain) from June 1, 2023. The company added a net 696 professionals in Q1 2023, mostly trainees, and 736 professionals in Q2 2023, 642 of which were via the acquired entities.
Most IT services companies are exhibiting slower growth than usual. This is even more pronounced for the companies in our direct peer group – the digital IT service specialists – some of which are even exhibiting negative growth. Project-based digital business is perhaps more discretionary and growth-oriented for clients, and is likely to be cut first when costs need to be cut. In our experience, this type of work bounces back smartly when the economy starts looking up.
We see weakness primarily in the Horizontal Tech vertical, where a few clients are facing sales or funding challenges. On the other hand, most clients across the spectrum remain fully engaged, not just on existing topics but also on new topics. The excitement around AI is tempting clients into conceptualizing data and AI projects that they would not have considered a year ago. We continue to attract new clients via these hot topics. We predict that the improved capabilities of artificial intelligence solutions will drive a race in each industry to harness this new technology to improve customer experience and delivered value, to win growth and market share, and to enhance safety, security and efficiency. A lot of digital engineering work will be required to enable these goals.
Compared to a year ago, wage inflation and attrition have dropped significantly in certain job markets, e.g., India.
Nagarro's revenues grew to €456.4 million in H1 2023 from €395.6 million in H1 2022, a growth of 15.4%. In constant currency, H1 2023 YoY revenue growth was 16.5%. Gross profit grew to € 118.9 million in H1 2023 from € 110.5 million in H1 2022. Gross margin dropped, changing from 27.9% in H1 2022 to 26.1% in H1 2023. Adjusted EBITDA reduced by €8.8 million from € 69.1 million (17.5% of revenue) in H1 2022 to €60.3 million (13.2% of revenue) in H1 2023. Gross margin and Adjusted EBITDA were weighed down by excess production capacity, as described above. Our most significant adjustments to EBITDA in H1 2023 are the expense of €1.4 million on share based payments and acquisition costs of €0.8 million. Please note that gross margin, gross profit and Adjusted EBITDA are non-IFRS KPIs, as defined in the Annual Report 2022.
EBITDA reduced by €9.1 million from € 67.2 million in H1 2022 to € 58.1 million in H1 2023. EBIT reduced by €9.0 million from € 51.6 million in H1 2022 to € 42.6 million in H1 2023. Net profit reduced by €9.7 million from € 36.3 million in H1 2022 to € 26.6 million in H1 2023. Further, compared to H1 2022, in H1 2023 there was an increase in interest expense of €3.5 million and a decrease of €0.2 million in depreciation and amortization. (Note: Taxes for H1 2022 have been restated due to amendments to IAS 12 – deferred tax related to assets and liabilities arising from a single transaction, as mandated by the International Accounting Standards Board ("IASB"), the details of which can be found under F.1 Restatement due to amendments to IAS 12 within "Section B: Interim condensed consolidated financial statements").
Our financial KPIs for the segments are the same as for the company, except that we do not monitor or report Adjusted EBITDA for the segments. Items like sales expense, general and administrative expense, depreciation, results related to currency fluctuations, results unrelated to the accounting period, interest income and expense, goodwill, depreciation of assets, and income taxes, are not allocated to any segment but are used to reconcile the net income for the segments to the net income of the company.
In H1 2023, Nagarro generated 36.6% of its revenue from North America (H1 2022: 39.2%), 27.7% of its revenue from Central Europe (H1 2022: 28.0%), 22.0% of its revenue from Rest of World (H1 2022: 20.8%) and 13.7% of its revenue from Rest of Europe (H1 2022: 12.0%).
Among our segments, the highest growth was registered by the Rest of Europe segment, which grew 31.3% in revenues to €62.3 million in H1 2023 from €47.5 million in H1 2022. Within this segment, the most growth was registered in the "Energy, Utilities and Building Automation" and "Automotive, Manufacturing and Industrial" verticals. Gross margin for the segment grew to 33.9% in H1 2023 from 28.4% in H1 2022.
Rest of World grew 22.1% in revenues to €100.4 million in H1 2023 from €82.3 million in H1 2022. The maximum contribution to growth was from the "Financial Services and Insurance" and "Automotive, Manufacturing and Industrial" verticals. "Horizontal Tech" posted the biggest decline. Gross margin decreased in Rest of World to 23.4% in H1 2023 from 27.8% in H1 2022.
Central Europe grew 14.2% in revenue to €126.4 million in H1 2023 from €110.6 million in H1 2022. "Life Sciences and Healthcare" and "Automotive, Manufacturing and Industrial" were the verticals with the most growth, while "Horizontal Tech" declined significantly. Gross margin for the segment increased to 25.0% in H1 2023 from 24.8% in H1 2022.
The North America segment grew 7.8% in revenues to €167.2 million in H1 2023 from €155.2 million in H1 2022. While the "Automotive, Manufacturing and Industrial" and "Travel and Logistics" verticals grew the most, "Horizontal Tech" declined here as well. Gross margin for the segment decreased to 25.5% in H1 2023 from 30.1% in H1 2022.
Revenues from Germany grew 15.1% to €93.2 million in H1 2023 from €80.9 million in H1 2022, while those from the USA grew 5.9% to €163.8 million in H1 2023 from €154.7 million in H1 2022.
Nagarro operates across a variety of industries. The focus on consumer experience underlies the digital transformation of almost every industry, while the data and AI technology used for this also cuts across industries. Innovation occurs increasingly often at the overlaps of the traditional industry definitions. Yet, each industry also requires specialized knowledge, and we have been investing in developing such specialized knowledge in industry after industry.
Industries with robust growth in H1 2023 over H1 2022 included "Energy, Utilities and Building Automation" (30.1%), "Automotive, Manufacturing and Industrial" (25.8%), "Financial Services and Insurance" (25.3%), and "Retail and CPG" (17.2%).
The one industry with negative growth in H1 2023 over H1 2022 was "Horizontal Tech" (-17.4%). Industries with low growth in H1 2023 over H1 2022 were "Public, Non-profit, Education" (6.4%) and "Management Consulting and Business Information" (12.1%).
The revenue from our top 5 clients as a percentage of total revenue in H1 2023 declined to 14.3% in H1 2023 from 15.4% in H1 2022. The revenue from the next 5 largest clients declined to 9.4% in H1 2023 from 10.6% in H1 2022, while the revenue from clients outside the top 10 grew to 76.3% in H1 2023 from 74.0% in H1 2022.
The top 5 currencies that contributed significantly to our revenues are listed below (in € million).
| Six-month period ended June 30 Revenue currency |
2023 mEUR |
2022 mEUR |
|---|---|---|
| USD | 192.4 | 173.3 |
| EUR | 156.7 | 130.6 |
| INR | 53.1 | 45.8 |
| ZAR | 10.2 | 8.0 |
| AED | 9.3 | 5.4 |
The top 5 currencies that contributed significantly to our expenses (net of operating income) including taxes but excluding foreign currency income and expenses are listed below (in € million).
| Six-month period ended June 30 Expenses currency |
2023 mEUR |
2022 mEUR |
|---|---|---|
| INR | 182.0 | 151.5 |
| EUR | 102.4 | 86.1 |
| USD | 58.1 | 50.4 |
| RON | 27.4 | 23.2 |
| CNY | 14.3 | 21.6 |
The basic principles of financial management at Nagarro are financial prudence and stability, ensuring a reasonable profitability and assuring adequate liquidity, even as the company grows via calculated entrepreneurial bets. We ensure we have the right capital structure in place, that we are managing cash and liquidity carefully, and we are managing financial risks such as currency risks with the appropriate instruments.
We target a balanced debt-to-equity ratio that preserves flexibility for the company, allowing it to react to business opportunities and to changes in macroeconomic conditions. Nagarro's syndicated loan incorporates covenants on the ratio of net debt to Adjusted EBITDA, which the company monitors and complies with.
The company's liquidity position at the end of H1 2023 was comfortable. The current assets were €353.3 million, of which cash was €99.3 million. The current liabilities were €186.1 million, yielding a working capital of €167.1 million.
Total assets grew by €66.9 million to €686.0 million as of June 30, 2023, as against €619.0 million as of December 31, 2022. Of these, non-current assets increased by €36.9 million to €332.7 million as of June 30, 2023, as against €295.8 million as of December 31, 2022. Within non-current assets, goodwill grew by €40.4 million (on account of the acquisitions of Infocore by €8.7 million, MBIS by €25.0 million and, APSL by €9.6 million, and negative currency differences of €2.9 million), and right of use assets from leases reduced by €3.2 million (mainly due their depreciation of €10.9 million offset by their net addition of €7.7 million). Intangible assets decreased by €0.3 million to €13.3 million (mainly because of currency differences and amortisation during the period offset by their increase on account of the acquisitions of MBIS by €2.1 million and APSL by €0.5 million). Current assets grew by €30.1 million to €353.3 million as of June 30, 2023, as against €323.2 million as of December 31, 2022. Within current assets, contract assets, trade receivables, other current financial assets and other current assets together increased by €30.3 million (primarily due to increase in trade receivables and contract assets by €22.9 million mainly relating to new acquisitions of €7.8 million and reduction in the factoring utilization by €10.6 million). Income tax receivables increased by €10.7 million to €27.4 million. Further, cash balance decreased by €10.8 million to €99.3 million mainly on account of outflows of €16.4 million for purchase of treasury shares. Note that the purchase price allocation for recent acquisitions is not yet complete and balance sheet items are currently stated at the estimated fair values.
Total liabilities grew by €59.6 million to €513.1 million as of June 30, 2023, as against €453.5 million as of December 31, 2022. Non-current liabilities have increased by €53.0 million mainly on account of net addition of non-current loans of €53.2 million for payment of acquisition liabilities. Current liabilities have increased by €6.7 million primarily due to increase in income tax liabilities by €7.6 million. The increase has been offset by reduction in other provisions by €5.7 million (mainly because of net payment of bonuses in the amount of €4.6 million).
Net assets represented by total equity grew by €7.3 million from €165.6 million as of December 31, 2022, to €172.9 million as of June 30, 2023. The increase is due to increase in total comprehensive income of €22.3 million and increase in capital reserves by €1.4 million (mainly from issuance of stock options under SOP 2020/II, SOP 2020/III and ESPP). This is offset by purchase of treasury shares amounting to €16.4 million in H1 2023. (Note: Total equity and certain other balance sheet items as of December 31, 2022, have been restated due to amendments to IAS 12 - deferred tax related to assets and liabilities arising from a single transaction, as mandated by IASB, the details of which can be found under F.1 Restatement due to amendments to IAS 12 within "Section B: Interim condensed consolidated financial statements".
Note that management does not review assets and liabilities at the reportable segment level, and therefore segment disclosure relating to total assets and liabilities is not included in the report.
Our total cashflow was negative €16.2 million in H1 2023 against negative €26.0 million in H1 2022. Our H1 2023 total cashflow was negative primarily due to purchase of treasury shares.
Our operating cash flow was €15.4 million in H1 2023 as compared to €15.0 million in H1 2022. Further, there was a reduction in the utilization of funds of €11.5 million under the factoring program and increase in trade receivables and contract assets relating to new acquisitions in Q2 2023 of €7.8 million.
Days of sales outstanding, calculated based on the quarterly revenue and including both contract assets and trade receivables, has increased from 69 days on December 31, 2022 to 79 days on June 30, 2023.
The cash outflow from investing activities in H1 2023 was €51.2 million, mainly due to the payment of acquisition obligations of €48.8 million (€5.3 million for the acquisition of Infocore, €16.3 million for the acquisition of MBIS and €6.9 million for the acquisition of APSL, and to meet contractual payment obligations from older acquisitions). The cash outflow from investing activities in H1 2022 was €39.2 million.
The cash inflow from financing activities in H1 2023 was €19.6 million as compared to cash outflow of €1.8 million in H1 2022. Majorly cash inflow was from net bank loans of €52.7 million. This is offset by cash outflow from purchase of treasury shares of €16.4 million, lease payments of €12.2 million and interest payment of €5.2 million.
Countries with the top 5 bank balances are listed below:
| Countries | June 30, 2023 mEUR |
December 31, 2022 mEUR |
|---|---|---|
| India | 27.7 | 26.1 |
| Germany | 25.0 | 22.5 |
| United States of America | 10.6 | 23.4 |
| France | 5.3 | 2.5 |
| China | 3.8 | 4.8 |
Our most important non-financial KPI is client satisfaction. We measure client satisfaction in various ways, the most extensive of which is a standardized client satisfaction (CSAT) survey. This survey is sent every quarter to the person responsible for project success on the client side. The CSAT does not cover very small engagements and at any point in time, may also not cover engagements via companies that recently became part of Nagarro. Despite these caveats, the CSAT results are very central to our management system and often form the most important basis for variable pay to project leadership. Each CSAT question asks the client's frequency of satisfaction with a particular aspect of our services. The percentage of responses that are "Always" or "Mostly" is our measure of overall satisfaction. The responses collected are monitored carefully at the aggregate level, at the question level, and at the project level. While minor fluctuations are to be expected, any significant trends are discussed and addressed.
From Q2 2022 onwards, the company revised the CSAT format to sharpen it and make the feedback more actionable. As a result of this change in the survey, H1 2023 scores will not be comparable with H1 2022. Our CSAT score was 95% in Q1 2022, using the old survey format, and, using the new survey format, it was 92.5% in Q2 2022. Our average CSAT score was 92.3% in H1 2023. We expect this KPI to remain in this region in 2023.
Nagarro has also introduced the concept of Net Promoter Score (NPS) in our CSAT survey. The question posed in the survey was: "On a scale of 1-10, how likely are you to recommend Nagarro to a friend or colleague?" Promoters are those who gave a score of 9 or 10, Passives are those who gave a score of 7 or 8, and Detractors are those who responded with a score below 7. The NPS score is calculated as (Number of Promoters – number of Detractors) * 100 / (total number of NPS responses). Nagarro's NPS score in the Q1 2023 survey was 60 and in the Q2 2023 survey was 63 resulting in to an H1 2023 score of 62. This is an excellent score, indicating a high level of client satisfaction with Nagarro's services.
On June 30, 2023, Nagarro had 19,682 professionals of which 18,200 were professionals in engineering. The comparable numbers for June 30, 2022 were 16,819 and 15,595 and for December 31, 2022 were 18,250 and 17,012, respectively.
In the last months, we sense a change in sentiment. After more than a year of bracing for an impending recession, clients appear to now be waiting for an impending recovery. It is impossible to guess at the timing of such a recovery, but we are encouraged by a lot of activity in terms of client conversations and new wins, especially in advanced topics. Our client relationships, our primary asset, remain excellent. Cuts at existing accounts can happen quickly and can run deep, but, in our past experience, such business can also recover quickly. On the other hand, new client wins and topic-by-topic expansion at existing clients is a lot more work, and we have continued to deliver that through H1. In summary, we have a strong base for a smart recovery when demand does recover.
The time available for such a recovery to have an impact in 2023 itself is, however, running out. We are therefore, revising our guidance for 2023. Due to adverse currency movements and scale-backs in a few projects, the company now estimates the total 2023 revenue, calculated at today's currency exchange rates and not including future acquisitions, to be in the region of €915 million, as against €856 million in 2022. The new estimate for gross margin is 26% in 2023 compared to 28% in 2022, while the new estimate for Adjusted EBITDA margin is 13% in 2023 compared to 17.3% in 2022. Management's revisions in the guidance for gross margin and Adjusted EBITDA are driven by excess production capacity and not driven by any unexpected pricing or cost developments.
The alternative performance measures in these management projections for 2023 have been consistently estimated with the accounting principles applied in the consolidated financial statements. All of the above management projections are forecasts and may be proved wrong and are especially uncertain because of the multidimensional and unpredictable effects of the global economic situation. However, we are confident that in the medium-term, our business has the potential to deliver years of strong organic revenue growth and a healthy Adjusted EBITDA margin that we now target to take up to at least 18% from 2026 onwards.
Nagarro continues to evaluate potential acquisition targets. Acquisitions, if any, are more likely to be of a bolt-on nature than transformative. The primary strategy is to acquire for client access, so as to better leverage our existing capabilities and case studies. However, there is always the possibility of an opportunistic transaction that deviates from our current strategy.
In the Annual Report 2022, we have described our approach to risk management, as well as key risk and opportunity factors. In this section, we present only the relevant changes and new developments. Since the publishing of the Annual Report, we see a continued weakness in the demand for IT services in certain verticals.
On the positive side, there is consensus among many analysts that the medium-term sentiment for the IT services industry is strong. We especially see great opportunity for Nagarro in the excitement around AI. Nagarro's agile-by-design approach and Thinking Breakthroughs innovation methodology are perfectly suited to helping clients drive company-wide AI adoption at a fast rate. We have encapsulated these strengths in our "Fluidic Enterprise AI" offering, which we are targeting first to our largest client relationships. We see the opportunity with AI to move Nagarro up the value chain and make us more strategic in every client engagement, which can eventually drive revenue and margin growth.
In the period after the balance sheet date of June 30, 2023, Nagarro's business has not changed significantly except as set out below.
Please consult the interim condensed consolidated financial statements note F.9 Events after the balance sheet date for more detail.
for the half-year ended June 30, 2023 in accordance with IFRS
| Interim condensed consolidated statements of financial position 16 | ||
|---|---|---|
| Interim condensed consolidated statements of comprehensive income 18 | ||
| Interim condensed consolidated statements of changes in equity 20 | ||
| Interim condensed consolidated statements of cash flow 22 | ||
| Notes to the interim condensed consolidated financial statements 23 | ||
| A. | General information23 | |
| 1. | Basis of preparation 23 | |
| B. | General accounting principles 24 | |
| 1. | New standards, interpretations and amendments adopted by the Group 24 | |
| 2. | Basis of consolidation26 | |
| C. | Notes to the interim condensed consolidated statements of financial position 27 | |
| 1. | Intangible assets 27 | |
| 2. | Goodwill 27 | |
| 3. | Right-of-use assets and lease liabilities 27 | |
| 4. | Trade receivables28 | |
| 5. | Equity29 | |
| 6. | Financial instruments31 | |
| D. | Notes to the interim condensed consolidated statements of comprehensive income 34 | |
| 1. | Revenue34 | |
| 2. | Other operating income34 | |
| 3. | Staff costs35 | |
| 4. | Other operating expenses 36 | |
| 5. | Finance costs37 | |
| 6. | Income taxes 37 | |
| 7. | Earnings per share (EPS)38 | |
| E. | Notes to the interim condensed consolidated statements of cash flow 39 | |
| 1. | Net cash flows from business combinations 39 | |
| 2. | Reconciliation of cash and cash equivalents, and financial liabilities40 | |
| F. | Other disclosures 41 | |
| 1. | Restatement due to amendments to IAS 1241 | |
| 2. | Business combinations42 | |
| 3. | Related party transactions 45 | |
| 4. | Share-based payment arrangements 46 | |
| 5. | Adjusted EBITDA48 | |
| 6. | Segment information48 | |
| 7. | Contingent liabilities and guarantees 50 | |
| 8. | Capital management51 |
| June 30, | December 31, | ||
|---|---|---|---|
| Assets | Note | 2023 | 2022 |
| in kEUR | |||
| Intangible assets | C.1 | 13,343 | 13,608 |
| Goodwill | C.2 | 242,987 | 202,622 |
| Property, plant and equipment | 12,167 | 11,443 | |
| Right of use assets | C.3 | 49,084 | 52,271 |
| Non-current contract costs | 89 | 89 | |
| Other non-current financial assets | 2,370 | 4,027 | |
| Other non-current assets | 869 | 960 | |
| Deferred tax assets * | 11,794 | 10,822 | |
| Non-current assets * | 332,703 | 295,841 | |
| Inventories | 213 | 264 | |
| Contract assets | 31,192 | 16,671 | |
| Trade receivables | C.4 | 165,178 | 156,809 |
| Other current financial assets | 14,124 | 7,643 | |
| Other current assets | 15,817 | 14,900 | |
| Income tax receivables | 27,403 | 16,749 | |
| Cash | 99,334 | 110,163 | |
| Current assets | 353,260 | 323,200 |
| Total assets * | 685,964 | 619,041 |
|---|---|---|
* Refer F.1 "Other disclosures - Restatement due to amendments to IAS 12"
| June 30, | December 31, | ||
|---|---|---|---|
| Equity and Liabilities | Note | 2023 | 2022 |
| in kEUR | |||
| Share capital | C.5 | 13,776 | 13,776 |
| Treasury shares, at cost | C.5 | (26,425) | (10,018) |
| Capital reserves | C.5 | 249,329 | 247,901 |
| Profit carried forward * | 174,594 | 97,213 | |
| Net profit for the period * | 26,586 | 77,382 | |
| Changes in equity recognized directly in equity | (260,612) | (260,612) | |
| Other comprehensive income * | C.5 | (4,376) | (63) |
| Total equity * | 172,873 | 165,578 | |
| Non-current liabilities to banks | 258,262 | 205,018 | |
| Non-current lease liabilities | C.3 | 30,551 | 34,004 |
| Long-term provisions for post-employment benefits | 13,991 | 11,419 | |
| Other long-term provisions | 346 | 330 | |
| Other non-current financial liabilities | 3,823 | 2,748 | |
| Non-current liabilities from acquisitions | 14,982 | 16,340 | |
| Deferred tax liabilities * | 5,015 | 4,139 | |
| Non-current liabilities * | 326,969 | 273,999 | |
| Current liabilities to banks | 15,316 | 11,519 | |
| Current lease liabilities | C.3 | 21,611 | 21,784 |
| Short-term provisions for post-employment benefits | 1,612 | 1,462 | |
| Other short-term provisions | 16,558 | 22,238 | |
| Current contract liabilities | 13,450 | 13,795 | |
| Trade payables | 16,819 | 15,251 | |
| Current liabilities from acquisitions | 22,132 | 20,188 | |
| Other current financial liabilities | 42,420 | 42,663 | |
| Other current liabilities | 8,288 | 10,218 | |
| Income tax liabilities | 27,917 | 20,347 | |
| Current liabilities | 186,122 | 179,464 | |
| Total liabilities | 513,091 | 453,463 | |
| Equity and liabilities * | 685,964 | 619,041 |
* Refer F.1 "Other disclosures - Restatement due to amendments to IAS 12"
Profit or Loss
| Six-month period ended June 30 | Note | 2023 | 2022 |
|---|---|---|---|
| in kEUR | |||
| Revenue | D.1 | 456,384 | 395,581 |
| Own work capitalized | 115 | 89 | |
| Other operating income | D.2 | 10,651 | 11,641 |
| Cost of materials | (43,220) | (38,343) | |
| Staff costs | D.3 | (318,447) | (265,431) |
| Impairment of trade receivables and contract assets | (302) | (970) | |
| Other operating expenses | D.4 | (47,073) | (35,317) |
| Earnings before interest, taxes, depreciation and amortization (EBITDA) |
58,107 | 67,249 | |
| Depreciation, amortization and impairment | (15,505) | (15,693) | |
| Earnings before interest and taxes (EBIT) | 42,602 | 51,557 | |
| Finance income | 763 | 237 | |
| Finance costs | D.5 | (8,035) | (4,505) |
| Earnings before taxes (EBT) | 35,331 | 47,289 | |
| Income taxes * | D.6 | (8,745) | (10,989) |
| Profit for the period | 26,586 | 36,300 | |
| Other comprehensive income | |||
| Six-month period ended June 30 | Note | 2023 | 2022 |
| in kEUR | |||
| Items that will not be reclassified to profit or loss Actuarial gains (losses) |
(696) | 46 | |
| Tax effects | 182 | (32) | |
| (514) | 14 | ||
| Items that may be reclassified to profit or loss | |||
| Foreign exchange differences * | (3,798) | 8,334 | |
| (3,798) | 8,334 | ||
| Other comprehensive income for the period * | (4,312) | 8,348 | |
| Total comprehensive income for the period * | 22,274 | 44,648 |
| Six-month period ended June 30 | Note | 2023 | 2022 |
|---|---|---|---|
| in kEUR | |||
| Basic earnings per share: | D.7 | ||
| Numbers of shares (based on weighted average) | 13,637,841 | 13,775,985 | |
| Numbers of shares (based on outstanding shares) | 13,478,112 | 13,775,985 | |
| Basic earnings per shares in EUR (based on weighted average) * |
1.95 | 2.64 | |
| Basic earnings per shares in EUR (based on outstanding shares) * |
1.97 | 2.64 | |
| Diluted earnings per share: | D.7 | ||
| Numbers of shares (based on weighted average) | 13,802,942 | 13,904,636 | |
| Numbers of shares (based on outstanding shares) | 13,643,213 | 13,904,636 | |
| Diluted earnings per share in EUR (based on weighted average) * |
1.93 | 2.61 | |
| Diluted earnings per share in EUR (based on outstanding shares) * |
1.95 | 2.61 | |
* Refer F.1 "Other disclosures - Restatement due to amendments to IAS 12"
| Other comprehensive income |
|||||||||
|---|---|---|---|---|---|---|---|---|---|
| Share capital | Treasury shares | Capital reserves | Profit carried forward | Net profit for the period | Changes in equity recognized directly in equity |
Foreign exchange differences | Actuarial gain or loss on pension provisions |
Total equity | |
| in kEUR | |||||||||
| Balance at January 1, 2023 | 13,776 | (10,018) | 247,901 | 97,213 | 77,382 | (260,612) | 2,974 | (3,038) | 165,578 |
| Profit for the period | – | – | – | – | 26,586 | – | – | – | 26,586 |
| Other comprehensive income for the period |
– | – | – | – | – | – | (3,798) | (514) | (4,312) |
| Total comprehensive income for the period |
– | – | – | – | 26,586 | – | (3,798) | (514) | 22,274 |
| Transfer of profit or loss for the previous year to profit carried forward |
– | – | – | 77,382 | (77,382) | – | – | – | – |
| Purchase of treasury shares | – | (16,407) | – | – | – | – | – | – | (16,407) |
| Dividends | – | – | – | – | – | – | – | – | – |
| Share capital issued | – | – | – | – | – | – | – | – | – |
| Transfer of capital reserves | – | – | – | – | – | – | – | – | – |
| Stock option and employee share participation program expense |
– | – | 1,428 | – | – | – | – | – | 1,428 |
| Balance at June 30, 2023 | 13,776 | (26,425) | 249,329 | 174,594 | 26,586 | (260,612) | (824) | (3,552) | 172,873 |
| Share capital | Other comprehensive income |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Treasury shares | Capital reserves | Profit carried forward | Net profit for the period | Changes in equity recognized directly in equity |
Foreign exchange differences | Actuarial gain or loss on pension provisions |
||||
| in kEUR | ||||||||||
| Balance at January 1, 2022 | 13,776 | - | 244,825 | 66,370 | 30,003 | (260,612) | 5,442 | (2,974) | 96,829 | |
| Impact due to adoption of IAS 12 amendment (Refer F.1 "Other disclosures - Restatement due to amendments to IAS 12") |
– | – | – | 841 | – | – | 21 | – | 861 | |
| Balance at January 1, 2022 (restated) | 13,776 | - | 244,825 | 67,210 | 30,003 | (260,612) | 5,462 | (2,974) | 97,690 | |
| Profit for the period | – | – | – | – | 36,300 | – | – | – | 36,300 | |
| Other comprehensive income for the period | – | – | – | – | – | – | 8,334 | 14 | 8,348 | |
| Total comprehensive income for the period | – | – | – | – | 36,300 | – | 8,334 | 14 | 44,648 | |
| Transfer of profit or loss for the previous year to profit carried forward |
– | – | – | 30,003 | (30,003) | – | – | – | – | |
| Dividends | – | – | – | – | – | – | – | – | – | |
| Share capital issued | – | – | – | – | – | – | – | – | – | |
| Transfer of capital reserves | – | – | – | – | – | – | – | – | – | |
| Stock option expense | – | – | 1,589 | – | – | – | – | – | 1,589 | |
| Balance at June 30, 2022 | 13,776 | – | 246,414 | 97,213 | 36,300 | (260,612) | 13,796 | (2,960) | 143,927 | |
| Cash flows | |||
|---|---|---|---|
| Six-month period ended June 30 | Note | 2023 | 2022 |
| in kEUR | |||
| Cash flows from operating activities | |||
| EBIT | 42,602 | 51,557 | |
| Depreciation, amortization and impairments of non-current assets | 15,505 | 15,693 | |
| Change in long-term provisions | 1,688 | 806 | |
| Other non-cash income and expenses | (2,110) | 4,583 | |
| Income taxes paid | (12,070) | (8,258) | |
| Cash flows from changes in net working capital | (18,712) | (58,139) | |
| Net cash inflow (outflow) from factoring | (11,533) | 8,717 | |
| Net cash inflow from operating activities | 15,371 | 14,958 | |
| Cash flows from investing activities | |||
| Payments for property, plant and equipment and intangible assets | (2,471) | (2,144) | |
| Proceeds from sale of property, plant and equipment and intangible assets |
74 | 11 | |
| Payments towards acquisition liabilities and acquisition of subsidiaries, net of cash acquired |
E.1 | (48,805) | (37,051) |
| Net cash outflow from investing activities | (51,202) | (39,184) | |
| Cash flows from financing activities | |||
| Purchase of treasury shares | (16,407) | - | |
| Proceeds from bank loans | 57,320 | 19,950 | |
| Repayment of bank loans | (4,616) | (8,570) | |
| Principal elements of lease payments | (12,225) | (10,753) | |
| Interest received | 763 | 237 | |
| Interest paid | (5,238) | (2,624) | |
| Net cash inflow (outflow) from financing activities | 19,597 | (1,760) | |
| Total cash flow | (16,234) | (25,986) | |
| Effects of exchange rate changes on cash and cash equivalents | 1,518 | (3,932) | |
| Total changes in cash and cash equivalents | (14,716) | (29,918) | |
| Cash and cash equivalents at the beginning of period | E.2 | 103,147 | 94,969 |
| Cash and cash equivalents at the end of period | E.2 | 88,431 | 65,051 |
The interim condensed consolidated financial statements of Nagarro SE and its subsidiaries (collectively, the Group) for the six months ended June 30, 2023 are unaudited and were authorized for issuance in accordance with the resolution of the Management Board on August 14, 2023.
The interim condensed consolidated financial statements for the six months ended June 30, 2023 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as a t December 31, 2022, which were prepared in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union (EU), and the supplementary requirements of §315e (1) of the German Commercial Code (HGB).
The interim condensed consolidated financial statements also comply with German Accounting Standard No. 16 (GAS 16) – Interim Financial Reporting –issued by the German Accounting Standards Committee e. V. (GASC).
The interim condensed consolidated financial statements are presented in euros. Amounts are stated in thousands of euros (kEUR), except where otherwise indicated. Rounding differences may arise when individual amounts or percentages are added together.
In the opinion of the management, the interim condensed consolidated financial statements reflect all accounting entries (in other words, normal recurring entries) necessary for a fair presentation of Nagarro's financial position and performance. Results presented for interim periods are not necessarily indicative of results that may be expected in future periods or for the full financial year.
In preparing the interim condensed consolidated financial statements according to IFRS, management has made discretionary decisions, estimates and assumptions. These may affect the amount and presentation of assets and liabilities recognized in the balance sheet, disclosures of contingent assets and liabilities as of the reporting date, as well as disclosed income and expenses for the reporting period. Actual amounts may vary from these estimates and assumptions; changes can have a significant impact on the interim condensed consolidated financial statements.
The interim condensed consolidated financial statements of Nagarro SE for the half year ended June 30, 2023, have not been reviewed by an auditor and have not been audited according to section 115 (5) WpHG (German Securities Trading Act).
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended December 31, 2022, except for the adoption of new standards effective as of January 1, 2023. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Several amendments apply for the first time in 2023, which are described below, but do not have a significant impact on the interim condensed consolidated financial statements of the Group.
IFRS 17 establishes the principles for the recognition, measurement, presentation, and disclosure of insurance contracts and supersedes IFRS 4 insurance contracts.
IFRS 17 outlines a general model, which is modified for insurance contracts with direct participation features, described as the variable fee approach. The general model is simplified if certain criteria are met by measuring the liability for remaining coverage using the premium allocation approach.
The general model uses current assumptions to estimate the amount, timing and uncertainty of future cash flows and it will explicitly measure the cost of that uncertainty. It takes into account market interest rates and the impact of policyholders' options and guarantees.
The amendments had no impact on the Group's interim condensed consolidated financial statements.
The amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements provide guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their 'significant' accounting policies with a requirement to disclose their 'material' accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments had no impact on the Group's interim condensed consolidated financial statements but are expected to affect the accounting policy disclosures in the Group's annual consolidated financial statements.
The amendments to IAS 8 clarify the distinction between changes in accounting estimates, and changes in accounting policies and the correction of errors. They also clarify how entities use measurement techniques and inputs to develop accounting estimates.
The amendments had no impact on the Group's interim condensed consolidated financial statements.
The amendments introduce a further exception from the initial recognition exemption. Under the amendments, an entity does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences.
The amendments apply prospectively to transactions that occur on or after the beginning of the earliest comparative period presented. In addition, an entity applies the amendments for the first time by recognizing deferred tax for all temporary differences related to leases and decommissioning obligations at the beginning of the earliest comparative period presented.
The adoption of amendments to IAS 12 has resulted in recognition of deferred tax on the right of use assets and lease liabilities. Accordingly, the previous period figures have been restated with effect from January 1, 2022, the details of which are
With the acquisition of the MBIS group in Turkey, as detailed in F.2 Business combinations, Nagarro has implemented IAS 29, Financial Reporting in Hyperinflationary Economies, as management has considered Turkey a hyperinflationary environment due to Turkey's cumulative three-year inflation exceeding the threshold of 100%. As the consolidation of MBIS Turkey was done from June 1, 2023, the financial statements of MBIS Turkey for H1 2023 were not restated for hyperinflation before the reported amounts were translated to the Nagarro's functional currency, Euro, applying the exchange rate at the reporting date. Since Nagarro's functional currency, Euro, is a non-hyperinflationary currency, IAS 29 does not require restatement of comparative figures in the year of implementation. Consequently, comparative figures have not been restated.
Non-monetary items, which are carried at historical cost, are restated for the effect of inflation based on changes in the price index for the period from initial recognition to the date of reporting or to the date of disposal, where relevant.
The restated gain or loss relating to the change in the price index for the reporting period is recognised in statement of profit or loss, except for the tax effect, which is recognised under income tax. The gain or loss relating to the prior periods is recognised in other comprehensive income.
Management assesses whether the restatement of non-monetary items represents an indication of impairment to ensure that the restated amounts do not exceed the recoverable amounts of the assets.
Monetary items are not subject to restatement for the effects of inflation as these items already reflect the purchasing power at the reporting date.
Equity includes the opening effect of restating non-monetary items. Further, the restatement effects of inflation based on changes in the price index for the reporting period are recognised in other comprehensive income with set-off within income or expenses in profit or loss.
Profit or loss transactions in the period are restated to reflect changes in the price index from the time of transaction to the end of the reporting period, with the exception of depreciation and amortisation. The latter are recalculated based on the inflationadjusted costs of intangible assets and right-of-use assets and property, plant and equipment. The recalculations are based on the useful lives of the relevant assets based on Nagarro's accounting policies.
Cash flow statement – Earnings before income tax includes a non-cash effect from the inflation restatement, which has been eliminated in the line non-cash items related to hyperinflation.
Restatement for hyperinflation of the financial statements of the Turkish subsidiary will be based on the development in the consumer price index provided by the Turkish Statistical Institute and will be made as part of the final consolidation of MBIS. On June 30, 2023, the 6-month inflation was 19.8% and the one-year inflation was 38.2%.
The financial statements of the Turkish subsidiaries, including effects of inflation restatement, have been translated into Euro applying the EUR/TRY exchange rate at the reporting date as opposed to Nagarro's normal practice of translating the profit or loss using the exchange rate at the transaction date or an average exchange rate for the period. The EUR / TRY exchange rate increased from 22.1 at the beginning of June 2023 to 28.4 at June 30, 2023.
The average EUR/TRY exchange rate for the reporting period was 21.5.
The interim consolidated financial statements as at June 30, 2023 include all the subsidiaries of the Group as mentioned in the consolidated financial statements as at December 31, 2022 along with the following additions made during the first half of 2023:-
(i) Nagarro Co., Ltd., a newly incorporated wholly owned subsidiary in Taiwan
The following entities were closed during the first half of 2023: -
Further, the following entities have been included during the first half of 2023 as a result of first-time consolidation on business acquisition of the Infocore group with effect from April 1, 2023, and of the MBIS group, Turkey, and APSL, Spain, with effect from June 1, 2023: -
Intangible assets are as follows:
| Jun 30, 2023 | Dec 31, 2022 | |
|---|---|---|
| kEUR | kEUR | |
| Orders on hand | 0 | 71 |
| Customer lists | 8,117 | 9,914 |
| Products | 1,576 | 2,138 |
| Software, licenses, rights | 2,616 | 346 |
| In-house developments | 1,034 | 1,138 |
| 13,343 | 13,608 | |
Goodwill developed as follows:
| Jun 30, 2023 | Dec 31, 2022 | ||
|---|---|---|---|
| kEUR | kEUR | ||
| Opening balance as at Jan 1 | 202,622 | 163,401 | |
| Acquisitions through business combinations | 43,266 | 30,497 | |
| Additions | - | - | |
| Disposals | - | - | |
| Currency differences | (2,901) | 8,723 | |
| Closing balance as at June 30 / Dec 31 | 242,987 | 202,622 | |
According to IFRS 16, assets used under lease agreements were determined and respective right-of- use assets were recognized, unless relating to leases of low-value assets or short-term leases. The right-of-use assets are as follows:
| Jun 30, 2023 |
Dec 31, 2022 |
|
|---|---|---|
| kEUR | kEUR | |
| Land use rights and buildings | 22,921 | 26,181 |
| Vehicles, operating and office equipment | 26,163 | 26,090 |
| 49,084 | 52,271 | |
| Jun 30, 2023 | Dec 31, 2022 | |||||
|---|---|---|---|---|---|---|
| of which: | of which: | |||||
| Total | non current |
current | Total | non current |
current | |
| kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | |
| Properties | 24,562 | 14,991 | 9,571 | 28,406 | 18,200 | 10,206 |
| Motor vehicles | 4,405 | 2,441 | 1,964 | 3,665 | 2,048 | 1,617 |
| Operating and office equipment |
23,195 | 13,119 | 10,076 | 23,716 | 13,757 | 9,960 |
| 52,162 | 30,551 | 21,611 | 55,788 | 34,004 | 21,784 | |
Trade receivables are composed as follows:
| June 30, 2023 | Dec 31, 2022 | |
|---|---|---|
| kEUR | kEUR | |
| Customer receivables | 170,564 | 162,799 |
| Impairment of customer receivables | (5,386) | (5,990) |
| 165,178 | 156,809 |
The below table shows the net factoring amounts which are offset against trade receivables.
| Jun 30, 2023 | Dec 31, 2022 | ||||
|---|---|---|---|---|---|
| of which: | of which: | ||||
| Net | Factoring utilization |
Factoring liability |
Net | Factoring utilization |
Factoring liability |
| kEUR | kEUR | kEUR | kEUR | kEUR | kEUR |
| 11,738 | 16,625 | (4,887) | 14,140 | 18,735 | (4,594) |
| 1,177 | 1,716 | (539) | 856 | 1,250 | (394) |
| 14,477 | 19,953 | (5,476) | 23,800 | 25,827 | (2,027) |
| 4,366 | 4,366 | - | 3,596 | 3,596 | - |
| 31,757 | 42,660 | (10,902) | 42,393 | 49,408 | (7,016) |
Equity is composed as follows:
| Jun 30, 2023 | Dec 31, 2022 | ||
|---|---|---|---|
| kEUR | kEUR | ||
| Share capital | 13,776 | 13,776 | |
| Treasury shares, at cost | (26,425) | (10,018) | |
| Capital reserves | 249,329 | 247,901 | |
| Profit carried forward * | 174,594 | 97,213 | |
| Net profit for the period * | 26,586 | 77,382 | |
| Changes in equity recognized directly in equity | (260,612) | (260,612) | |
| Other comprehensive income | |||
| Foreign currency reserve * | (824) | 2,974 | |
| Actuarial gain or loss on pension provisions * | (3,552) | (3,038) | |
| Total Equity * | 172,873 | 165,578 | |
* Refer F.1 "Other disclosures - Restatement due to amendments to IAS 12"
The Management Board of Nagarro SE, decided to again make use of the authorization granted by the shareholders' meeting on October 30, 2020, to repurchase shares of the Company in accordance with Sec. 71 para. 1 no. 8 of the German Stock Corporation Act (Aktiengesetz, AktG).
In aggregate, up to 350,000 shares of Nagarro SE are to be repurchased, subject to an overall purchase volume limit of EUR 30 million (excluding ancillary costs of purchase). The share buyback has started and is carried out from the time period from April 24, 2023. The terms of this share buyback program were announced on May 02, 2023, in accordance with Art. 5 para. 1 lit. a) of the Regulation (EU) no. 596/2014 and Art. 2 para. 1 of the Commission Delegated Regulation (EU) no. 2016/1052.
The changes in treasury shares are composed as follows:
| Jun 30, 2023 | Jun 30, 2023 | Dec 31, 2022 | Dec 31, 2022 | |
|---|---|---|---|---|
| Numbers | kEUR | Numbers | kEUR | |
| Opening balance | 103,867 | 10,018 | - | - |
| Acquired during the year | 194,006 | 16,407 | 103,867 | 10,018 |
| Sale during the year | - | - | - | - |
| Closing balance | 297,873 | 26,425 | 103,867 | 10,018 |
More information is available on Nagarro's website at the link Buyback of shares 2023. Also refer note F.9 Events after the balance sheet date for updated status on the program.
The changes in capital reserves are composed as follows:
| Jun 30, 2023 | Dec 31, 2022 | ||
|---|---|---|---|
| kEUR | kEUR | ||
| Opening balance as at Jan 1 | 247,901 | 244,825 | |
| Stock option expense of SOP 2020/II - Tranche 1 | 748 | 2,732 | |
| Stock option expense of SOP 2020/III | 96 | 344 | |
| Stock option expense of SOP 2020/II - Tranche 2 | 530 | - | |
| Employee share participation program expense - ESPP 2023 | 54 | - | |
| Closing balance as at Jun 30 / Dec 31 | 249,329 | 247,901 | |
The changes in other comprehensive income are composed as follows:
| Jun 30, 2023 | Dec 31, 2022 |
|---|---|
| kEUR | kEUR |
| (63) | 2,488 |
| (3,798) | (2,488) |
| (514) | (64) |
| (4,376) | (63) |
* Refer F.1 "Other disclosures - Restatement due to amendments to IAS 12"
The carrying amounts and fair values of financial instruments are classified as follows:
| Carrying amounts | Fair values | |||||||
|---|---|---|---|---|---|---|---|---|
| Jun 30, 2023 | at fair value |
at amortized costs |
Total | Level 1 | Level 2 | Level 3 | Total | |
| kEUR | ||||||||
| Financial assets | ||||||||
| Fair value through profit and loss account (FVTPL) |
||||||||
| Other financial assets | ||||||||
| Foreign exchange forward transactions |
1,096 | - | 1,096 | - 1,096 |
- | 1,096 | ||
| 1,096 | - | 1,096 | - 1,096 |
- | 1,096 | |||
| Amortized cost (AC) | ||||||||
| Trade receivables | - | 165,178 | 165,178 | - - |
- | 165,178 | ||
| Other financial assets | - | 15,398 | 15,398 | - - |
- | 15,398 | ||
| Cash | - | 99,334 | 99,334 | - - |
- | 99,334 | ||
| - | 279,909 | 279,909 | - - |
- | 279,909 | |||
| 1,096 | 279,909 | 281,005 | - 1,096 |
- | 281,005 | |||
| Financial liabilities | ||||||||
| Fair value through profit and loss account (FVTPL) |
||||||||
| Liabilities from acquisitions | 37,115 | - | 37,115 | - - |
37,115 | 37,115 | ||
| Foreign exchange forward transactions |
460 | - | 460 | - 460 |
- | 460 | ||
| 37,575 | - | 37,575 | - 460 |
37,115 | 37,575 | |||
| Amortized cost (AC) | ||||||||
| Liabilities to banks | - | 273,577 | 273,577 | - - |
- | 273,577 | ||
| Trade payables | - | 16,819 | 16,819 | - - |
- | 16,819 | ||
| Other financial liabilities | - | 45,782 | 45,782 | - - |
- | 45,782 | ||
| - | 336,179 | 336,179 | - - |
- | 336,179 | |||
| 37,575 | 336,179 | 373,754 | - 460 |
37,115 | 373,754 |
| Carrying amounts | Fair values | ||||||
|---|---|---|---|---|---|---|---|
| Dec 31, 2022 | at fair value |
at amor tized costs |
Total | Level 1 | Level 2 | Level 3 | Total |
| kEUR | |||||||
| Financial assets | |||||||
| Fair value through profit and loss account (FVTPL) |
|||||||
| Other financial assets | |||||||
| Foreign exchange forward transactions |
39 | - | 39 | - | 39 | - | 39 |
| 39 | - | 39 | - | 39 | - | 39 | |
| Amortized cost (AC) Trade receivables |
- | 156,809 | 156,809 | - | - | - | 156,809 |
| Other financial assets | - | 11,631 | 11,631 | - | - | - | 11,631 |
| Cash | - | 110,163 | 110,163 | - | - | - | 110,163 |
| - | 278,602 | 278,602 | - | - | - | 278,602 | |
| 39 | 278,602 | 278,642 | - | 39 | - | 278,642 | |
| Financial liabilities | |||||||
| Fair value through profit and loss account (FVTPL) |
|||||||
| Liabilities from acquisitions | 36,294 | - | 36,294 | - | - | 36,294 | 36,294 |
| Foreign exchange forward transactions |
3,038 | - | 3,038 | - | 3,038 | - | 3,038 |
| 39,332 | - | 39,332 | - | 3,038 | 36,294 | 39,332 | |
| Amortized cost (AC) | |||||||
| Liabilities from acquisitions | - | 234 | 234 | - | - | - | 234 |
| Liabilities to banks | - | 216,537 | 216,537 | - | - | - | 216,537 |
| Trade payables | - | 15,251 | 15,251 | - | - | - | 15,251 |
| Other financial liabilities | - | 42,373 | 42,373 | - | - | - | 42,373 |
| - | 274,394 | 274,394 | - | - | - | 274,394 | |
| 39,332 | 274,394 | 313,726 | - | 3,038 | 36,294 | 313,726 |
Contract assets (June 30, 2023: kEUR 31,192; December 31, 2022: kEUR 16,671) and lease liabilities (June 30, 2023: kEUR 52,162; December 31, 2022: kEUR 55,788) are not allocated to any of the measurement categories under IFRS 9 and are therefore not included in the tables above.
For items for which fair value is not disclosed, the carrying amounts are deemed a fair representation of the fair value.
For determining the fair value of assets and liabilities, where possible, Nagarro uses prices that can be observed in the market. Depending on the input factors, the fair value is classified in different levels of the measurement hierarchy:
| Level 1 | Prices for identical assets and liabilities are used that are available in active markets. |
|---|---|
| Level 2 | Other measurement factors are used for an asset or a liability that can be observed directly or indirectly, or that can be derived from market prices. |
| Level 3 | Measurement factors are used that are not based on observable market data. |
Forward rate pricing: The fair value is determined using quoted forward rates on the balance sheet date and net present value calculations based on yield curves with high credit ratings in corresponding currencies.
Financial instruments categorized in Level 3 are derived as follows:
| Contingent purchase price liabilities measured at fair value |
Nagarro Objectiva |
Nagarro MENA |
ATCS | RipeConcepts | Techmill | Infocore | MBIS | APSL | Total |
|---|---|---|---|---|---|---|---|---|---|
| kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | kEUR | |
| Balance as at Jan 1, 2022 | 1,759 | 1,125 | 33,176 | - | - | - | - | - | 36,060 |
| Additions | - | - | - | 11,812 | 5,654 | - | - | - | 17,467 |
| Interest effect | 3 | 4 | 510 | 321 | 112 | - | - | - | 950 |
| Reduction due to payments | (1,329) | (759) | (13,920) | (2,847) | (2,095) | - | - | - | (20,950) |
| Currency differences | 135 | 313 | 2,191 | 675 | 22 | - | - | - | 3,335 |
| Purchase price adjustment | (568) | - | - | - | - | - | - | - | (568) |
| Balance as at Dec 31, 2022 | - | 682 | 21,957 | 9,962 | 3,692 | - | - | - | 36,294 |
| Additions | - | - | - | - | - | 5,179 | 12,144 | 3,688 | 21,011 |
| Interest effect | - | - | 128 | 102 | 50 | 61 | 48 | 15 | 404 |
| Reduction due to payments | - | (676) | (15,356) | (3,701) | (394) | - | - | - | (20,127) |
| Currency differences | - | (6) | (258) | (141) | (59) | (4) | - | - | (467) |
| Balance as at Jun 30, 2023 | - | - | 6,471 | 6,223 | 3,290 | 5,236 | 12,192 | 3,702 | 37,115 |
Contingent purchase price liabilities are measured based on the respective planning. The criteria agreed in the purchase agreements for achieving the contingent purchase prices are compared with the plans, and the fair value of the contingent purchase price liabilities is determined on this basis.
| Six-month period ended June 30 | 2023 | 2022 |
|---|---|---|
| kEUR | kEUR | |
| Automotive, Manufacturing and Industrial | 94,870 | 75,395 |
| Energy, Utilities and Building Automation | 35,549 | 27,321 |
| Financial Services and Insurance | 63,187 | 50,413 |
| Horizontal Tech | 32,848 | 39,759 |
| Life Sciences and Healthcare | 34,664 | 29,876 |
| Management Consulting and Business Information | 31,206 | 27,847 |
| Public, Non-profit and Education | 35,573 | 33,421 |
| Retail and CPG | 60,794 | 51,880 |
| Telecom, Media and Entertainment | 26,531 | 23,084 |
| Travel and Logistics | 41,161 | 36,587 |
| 456,384 | 395,581 |
| Six-month period ended June 30 | 2023 | 2022 |
|---|---|---|
| kEUR | kEUR | |
| Income from currency translation | 5,157 | 10,661 |
| Income from foreign exchange forward transactions | 3,620 | - |
| Income from sale of fixed assets | 74 | 11 |
| Reversal of value adjustments on receivables | 139 | - |
| Release of provisions | 599 | 190 |
| Gain on lease modification | 0 | 8 |
| Miscellaneous | 1,062 | 772 |
| 10,651 | 11,641 | |
Staff costs are composed as follows:
| Six-month period ended June 30 | 2023 | 2022 |
|---|---|---|
| kEUR | kEUR | |
| Salaries and wages | 278,987 | 230,356 |
| Social security contributions | 22,635 | 18,641 |
| Bonuses | 15,396 | 14,845 |
| Stock option expense | 1,428 | 1,589 |
| 318,447 | 265,431 | |
As on June 30, 2023, Nagarro had 19,682 (June 30, 2022: 16,819) professionals of which 18,200 (June 30, 2022: 15,595) were professionals in engineering.
Nagarro has recognized an expense of kEUR 1,428 (June 30, 2022: kEUR 1,589) against shares granted under the company's Stock Option Plan and the Employee Share Participation Plan and recognized the corresponding amount in capital reserves (refer note C.5 Equity).
Other operating expenses are composed as follows:
| Six-month period ended June 30 | 2023 | 2022 |
|---|---|---|
| kEUR | kEUR | |
| Travel expenses | 7,018 | 4,150 |
| Vehicle costs | 2,060 | 1,678 |
| IT costs | 5,256 | 3,773 |
| Services | 1,673 | 1,671 |
| Land and building costs | 1,592 | 1,240 |
| Other staff costs | 4,621 | 4,086 |
| Advertising expenses | 2,430 | 1,209 |
| Communication expenses | 1,434 | 1,429 |
| Maintenance | 719 | 742 |
| Expense from currency translation | 9,637 | 2,661 |
| Expenses for foreign exchange forward transactions | 19 | 1,887 |
| Insurance, contributions | 1,510 | 1,554 |
| Legal and consulting fees | 1,518 | 1,461 |
| Entertainment expenses | 405 | 1,290 |
| Office supplies | 506 | 454 |
| Expenses for statutory financial statements | 613 | 839 |
| Direct selling expenses | 109 | 218 |
| Supervisory board remuneration | 281 | 281 |
| Residual book value from disposal of assets | 118 | 73 |
| Loss on lease modification | 2 | 129 |
| Acquisition costs | 803 | 251 |
| Miscellaneous | 4,747 | 4,240 |
| 47,073 | 35,317 |
Finance costs are composed as follows:
| Six-month period ended June 30 | 2023 | 2022 |
|---|---|---|
| kEUR | kEUR | |
| Interest on leases | 856 | 996 |
| Interest on bank loans | 5,223 | 2,606 |
| Factoring interest | 1,111 | 255 |
| Interest portion of additions to pension provisions | 425 | 284 |
| Other interest expenses | 420 | 364 |
| 8,035 | 4,505 | |
Income tax expense is recognized at an amount determined by multiplying the profit before tax for the interim reporting period by management's best estimate of the weighted-average annual income tax rate expected for the full financial year, adjusted for the tax effect of certain items recognized in full in the interim period. As such, the effective tax rate in the interim condensed consolidated financial statements may differ from management's estimate of the effective tax rate for the annual consolidated financial statements.
Earnings per share are calculated as follows:
| Six-month period ended June 30 | 2023 | 2022 |
|---|---|---|
| kEUR | kEUR | |
| Profit for the period | 26,586 | 36,300 |
| Weighted average number of shares outstanding - basic | 13,637,841 | 13,775,985 |
| Number of shares outstanding - basic | 13,478,112 | 13,775,985 |
| Effect of dilutive share-based payment (Stock Option Plan and Employee Share Participation Plan) |
165,101 | 128,651 |
| Total effect of dilution | 165,101 | 128,651 |
| Weighted average number of share outstanding - diluted | 13,802,942 | 13,904,636 |
| Number of shares outstanding - diluted | 13,643,213 | 13,904,636 |
| Basic earnings per share in EUR (based on weighted average) | 1.95 | 2.64 |
| Basic earnings per share in EUR (based on shares outstanding) | 1.97 | 2.64 |
| Diluted earnings per share in EUR (based on weighted average) | 1.93 | 2.61 |
| Diluted earnings per share in EUR (based on shares outstanding) | 1.95 | 2.61 |
Cash flows from operating activities are reported using the indirect method. Interest paid and received are included in cash flows from financing activities.
Cash outflows for the acquisition of subsidiaries from third parties in first half-year of 2023, net of cash acquired, reconcile as follows:
| Six-month period ended June 30 | 2023 | 2023 | 2023 | 2023 |
|---|---|---|---|---|
| kEUR | kEUR | kEUR | kEUR | |
| Infocore | MBIS | APSL | Total | |
| Purchase consideration | 11,009 | 29,344 | 14,209 | 54,562 |
| Contingent purchase price liabilities | 5,179 | 12,144 | 3,688 | 21,011 |
| Purchase price paid in cash in current period | 5,830 | 17,200 | 10,521 | 33,552 |
| Acquired cash and cash equivalents | (558) | (945) | (3,602) | (5,105) |
| Outflow (inflow) of cash and cash equivalents | 5,272 | 16,255 | 6,919 | 28,446 |
Cash outflows for the acquisition of subsidiaries from third parties in first half-year of 2022, net of cash acquired, reconcile as follows:
| Six-month period ended June 30 | 2022 | 2022 | 2022 |
|---|---|---|---|
| kEUR | kEUR | kEUR | |
| RipeConcepts | Techmill | Total | |
| Purchase consideration | 27,201 | 12,609 | 39,810 |
| Contingent purchase price liabilities | 11,812 | 5,652 | 17,465 |
| Purchase price paid in cash in current period | 15,388 | 6,955 | 22,343 |
| Acquired cash and cash equivalents | (1,313) | (1,721) | (3,034) |
| Outflow (inflow) of cash and cash equivalents | 14,075 | 5,234 | 19,309 |
Additionally, to fulfil the contractual obligations of the company for the acquisition of Nagarro UAE in 2019 kEUR 676 (June 30, 2022: kEUR 705), Nagarro Objectiva in 2020 kEUR 0 (June 30, 2022: kEUR 1,280), ATCS in 2021 kEUR 15,356 (June 30, 2022: kEUR 13,412), RipeConcepts in 2022 kEUR 3,701 (June 30, 2022: kEUR 1,829) and Techmill in 2022 kEUR 394 (June 30, 2022: kEUR 516) were paid during the first half of 2023. Also refer note C.6 Financial instruments.
Cash and cash equivalents comprise as follows:
| Six-month period ended on June 30 | Jun 30, 2023 | Jun 30, 2022 |
|---|---|---|
| kEUR | kEUR | |
| Cash | 99,334 | 72,115 |
| Liabilities from factoring | (10,902) | (6,707) |
| Overdraft facilities | - | (356) |
| 88,431 | 65,051 | |
As mentioned in note B.1 New standards, interpretations and amendments adopted by the Group, the adoption of amendments to IAS 12 has resulted in recognition of deferred tax on the right of use assets and lease liabilities. Accordingly, the previous period figures have been restated with effect from January 1, 2022, the details of which are as follows:
| (Previously reported) |
(Restated) | |
|---|---|---|
| December 31, 2022 | Adjustments due to adoption of IAS 12 amendments |
December 31, 2022 |
| 9,924 | 897 | 10,822 |
| 9,924 | 897 | 10,822 |
| December 31, 2022 | Adjustments due to adoption of IAS 12 amendments |
December 31, 2022 |
| 164,684 | 894 | 165,578 |
| 4,136 | 3 | 4,139 |
| 168,820 | 897 | 169,717 |
| Consolidated statement of comprehensive income | (Previously reported) |
(Restated) | |
|---|---|---|---|
| Six-month period ended June 30 | 2022 | Adjustments due to adoption of IAS 12 amendments |
2022 |
| in kEUR | |||
| Earnings before taxes (EBT) | 47,289 | - | 47,289 |
| Income taxes | (11,091) | 103 | (10,989) |
| Profit for the period | 36,197 | 103 | 36,300 |
| Other comprehensive income | |||
| Items that will not be reclassified to profit or loss | 14 | - | 14 |
| Items that may be reclassified to profit or loss | 8,321 | 13 | 8,334 |
| Other comprehensive income for the period | 8,335 | 13 | 8,348 |
| Total comprehensive income for the period | 44,532 | 116 | 44,648 |
| reported) | (Restated) | |
|---|---|---|
| December 31, 2021 | Adjustments due to adoption of IAS 12 amendments |
December 31, 2021 |
| 11,039 | 878 | 11,917 |
| 11,039 | 878 | 11,917 |
| December 31, 2021 | Adjustments due to adoption of IAS 12 amendments |
December 31, 2021 |
| 96,829 | 861 | 97,690 |
| 4,401 | 17 | 4,418 |
| 101,230 | 878 | 102,108 |
| (Previously |
By way of a stock purchase agreement dated February 23, 2023, Nagarro SE, Germany, acquired Infocore Engineering & IT Services GmbH, Germany and its wholly owned subsidiary Infocore Engineering & IT Services Inc, United States of America. By way of a stock purchase agreement dated February 23, 2023, Nagarro MENA LLC, United Arab Emirates, acquired Infocore Software Trading and Services FZCO, United Arab Emirates. Also, Nagarro Software Private Limited, India, signed a business transfer agreement on February 23, 2023 with Infocore Engineering & IT Services Private Limited, India, to acquire its net assets in an asset deal. Through these agreements, Nagarro acquired the entire business of Infocore group (together called "Infocore").
Infocore is an expert in Product Lifecycle Management (PLM) and Manufacturing Operations Management (MOM) solutions and by this transaction Nagarro strengthens its capabilities in its Automotive, Manufacturing and Industrial vertical. The acquisition of the Infocore business will support the development of Nagarro's fast-growing Rest of World segment, particularly with Infocore's presence in United Arab Emirates and India, and further strengthen Central Europe segment, with its presence in Germany.
A maximum purchase price of USD 12.0 million (including earnout payment of USD 5.0 million and retention bonus of USD 1.0 million over the period) plus payment of the excess working capital was agreed for the acquisition of Infocore. The fixed component of the purchase price of USD 6.0 million (EUR 5.6 million) and partial component of the excess working capital of USD 0.3 million (EUR 0.3 million) was paid in March 2023. Once the excess working capital calculations are finalized, the same shall be paid / adjusted. The remaining purchase price is due to be paid between 2023 and 2027, depending on the achievement of targets in the share purchase agreement.
The closing of the deal has been done and one hundred percent of the equity of Infocore has been acquired. Accordingly, Infocore has been consolidated for the first time with Nagarro from April 1, 2023. At the time the half-yearly report was issued, the Nagarro group had not yet completed the accounting for the acquisition of Infocore. In particular, the fair values of the assets and liabilities disclosed below have only been determined provisionally:
| Estimated fair value |
|
|---|---|
| kEUR | |
| Property, plant and equipment | 66 |
| Right of use assets | 76 |
| Other financial assets | 298 |
| Trade receivables | 1,622 |
| Other assets | 304 |
| Income tax receivables | 48 |
| Cash and cash equivalents | 558 |
| Assets acquired | 2,972 |
| Lease liabilities | 76 |
| Provisions for post-employment benefits |
44 |
| Other provisions | 102 |
| Contract liabilities | 2 |
| Trade payables | 133 |
| Other financial liabilities | 80 |
| Other current liabilities | 15 |
| Income tax liabilities | 180 |
| Liabilities assumed | 632 |
| Total identifiable net assets at fair value |
2,340 |
| Goodwill arising on acquisition | 8,669 |
| Purchase consideration | 11,009 |
From the date of acquisition, Infocore has generated revenue of kEUR 1,317 and earnings before interest, taxes, depreciation and amortization of kEUR 387. If the combination had taken place at the beginning of the year, revenues from Infocore would have been kEUR 2,680 and earnings before interest, taxes, depreciation, and amortization would have been kEUR 530. In connection with the transaction there were costs of kEUR 172 which were recognized in other operating expenses in the first half of 2023.
By way of a stock purchase agreement dated February 28, 2023, Nagarro SE, Germany, acquired M.B.İ.S Bilgisayar Otomasyon Danışmanlık ve Eğitim Hizmetleri Sanayi ve Ticaret A.Ş., Turkey ("MBIS"). MBIS is a full-service provider in the Turkish SAP market and with this transaction Nagarro strengthens capabilities of its Global Business Unit SAP which serves customers in different industry segments across the globe.
A maximum purchase price of EUR 30.5 million (including earnout payment of EUR 13.3 million over the period) plus payment of the excess working capital was agreed for the acquisition of MBIS. The fixed component of the purchase price of EUR 13.3 million was paid in May 2023 and once the excess working capital calculations are finalized, the same shall be paid / adjusted. The remaining purchase price is due to be paid between 2023 and 2027, depending on the achievement of targets in the share purchase agreement.
The closing of the deal has been done and one hundred percent of the equity of MBIS has been acquired. Accordingly MBIS has been consolidated for the first time with Nagarro from June 1, 2023. At the time the half-yearly report was issued, the Nagarro group had not yet completed the accounting for the acquisition of MBIS. In particular, the fair values of the assets and liabilities disclosed below have only been determined provisionally:
| Estimated fair value |
|
|---|---|
| kEUR | |
| Intangible assets | 2,115 |
| Property, plant and equipment | 719 |
| Right of use assets | 748 |
| Deferred tax assets | 96 |
| Other financial assets | 430 |
| Inventories | 189 |
| Contract assets | 1,775 |
| Trade receivables | 4,142 |
| Other assets | 298 |
| Income tax receivables | 27 |
| Cash and cash equivalents | 945 |
| Assets acquired | 11,484 |
| Liabilities to banks | 20 |
| Lease liabilities | 895 |
| Other provisions | 1,353 |
| Trade payables | 4,191 |
| Other financial liabilities | 597 |
| Other liabilities | 11 |
| Income tax liabilities | 45 |
| Liabilities assumed | 7,112 |
| Total identifiable net assets at fair value | 4,372 |
| Goodwill arising on acquisition | 24,972 |
| Purchase consideration | 29,344 |
From the date of acquisition, MBIS has generated revenue of kEUR 1,898 and earnings (loss) before interest, taxes, depreciation and amortization of kEUR (251). If the combination had taken place at the beginning of the year, revenues from MBIS would have been kEUR 11,064 and earnings before interest, taxes, depreciation, and amortization would have been kEUR 606. In connection with the transaction there were costs of kEUR 435 which were recognized in other operating expenses in the first half of 2023.
By way of a stock purchase agreement dated May 31, 2023, Nagarro SE, Germany, acquired Advanced Programming Solutions S.L., Spain ("APSL"). APSL is a high-value end-to-end services provider in application development, cloud systems, and data analytics and it leverages open-source tools to develop proprietary business management cloud solutions for clients. The transaction enhances Nagarro's services in the travel and energy industries and opens the fast-growing IT services market in Spain in the Rest of Europe segment.
A maximum purchase price of EUR 13.0 million (including earnout payment of EUR 4.0 million over the period) plus payment of the excess working capital was agreed for the acquisition of APSL. The fixed component of the purchase price of EUR 9.0 mi llion and partial component of excess working capital of EUR 1.5 million was paid in May 2023. Once the excess working capital calculations are finalized, the same shall be paid/adjusted. The payment of the remaining purchase price is due between 2023 and 2027, depending on the achievement of targets in the share purchase agreement.
The closing of the deal has been done and one hundred percent of the equity of APSL has been acquired. Accordingly, APSL has been consolidated for the first time with Nagarro from June 1, 2023. At the time the half-yearly report was issued, Nagarro group
| Estimated fair value |
|
|---|---|
| kEUR | |
| Intangible assets | 460 |
| Property, plant and equipment | 113 |
| Right of use assets | 47 |
| Deferred tax assets | 117 |
| Other financial assets | 42 |
| Trade receivables | 1,579 |
| Cash and cash equivalents | 3,602 |
| Assets acquired | 5,961 |
| Liabilities to banks | 318 |
| Lease liabilities | 47 |
| Trade payables | 17 |
| Other financial liabilities | 651 |
| Other liabilities | 104 |
| Income tax liabilities | 239 |
| Liabilities assumed | 1,377 |
| Total identifiable net assets at fair value | 4,584 |
| Goodwill arising on acquisition | 9,625 |
| Purchase consideration | 14,209 |
From the date of acquisition, APSL has generated revenue of kEUR 711 and earnings before interest, taxes, depreciation and amortization of kEUR 189. If the combination had taken place at the beginning of the year, revenues from APSL would have been kEUR 4,162 and earnings before interest, taxes, depreciation, and amortization would have been kEUR 1,071. In connection with the transaction there were costs of kEUR 195 which were recognized in other operating expenses in the first half of 2023.
Significant transactions with related parties in accordance with section 115 (4) sentence 2 WpHG and IAS 34.15B (j)
Business relationships among all companies included in the consolidated financial statements were fully eliminated in the consolidated financial statements.
Nagarro SE has issued stock options under stock option plans and stocks under employee share participation program. The details of these plans are as follows:
The details of the plans under which Nagarro SE issued stock options are as follows:
| People addressed | Members of the management of Nagarro SE and its group companies and employees of group companies |
Members of the Management Board of Nagarro SE |
|---|---|---|
| Number of options authorized | 800,000 until October 22, 2025 | 45,000 until October 22, 2025 |
| Authorization by | General meeting on October 31, 2020 | General meeting on October 31, 2020 |
| Plan name | Stock Option Plan 2020/II | Stock Option Plan 2020/III |
| Vesting period | 4 years | 4 years |
| Term | 10 years | 10 years |
| Exercise price valuation | 110% of the average closing price of the last five trading days prior to the offer |
110% of the average closing price of the last five trading days prior to the offer |
| Vesting condition | 25% of the stock options granted to an option holder vest after 12, 24, 36 and 48 months following the issuance date |
25% of the stock options granted to an option holder vest after 12, 24, 36 and 48 months following the issuance date |
| Settlement method | Equity shares of Nagarro SE | Equity shares of Nagarro SE |
| Exercising of option | Exercisable after a vesting period of 4 years and limited to a period of two weeks after each Annual General Meeting and after the publication of annual, semi-annual and quarterly figures |
Exercisable after a vesting period of 4 years and limited to a period of two weeks after each Annual General Meeting and after the publication of annual, semi-annual and quarterly figures |
| Plan name | Stock Option Plan 2020/III |
Stock Option Plan 2020/II (Tranche 1) |
Stock Option Plan 2020/II (Tranche 2a) |
Stock Option Plan 2020/II (Tranche 2b) |
|---|---|---|---|---|
| Number of options issued | 45,000 | 410,000 | 141,500 | 8,750 |
| Date of grant | Jan 15, 2021 | Jan 15, 2021 | Apr 26, 2023 | May 23, 2023 |
| Exercise price | EUR 95.35 | EUR 95.35 | EUR 110.08 | EUR 91.55 |
| Average closing price | EUR 86.68 | EUR 86.68 | EUR 100.07 | EUR 83.23 |
| Stock price on the grant date | EUR 78.60 | EUR 78.60 | EUR 94.60 | EUR 83.40 |
| Weighted average fair values at the measurement date |
EUR 27.19 | EUR 27.19 | EUR 46.42 | EUR 42.12 |
| Dividend yield | 0.00% | 0.00% | 0.00% | 0.00% |
| Expected volatility | 34.27% | 34.27% | 37.90% | 37.80% |
| Risk–free interest rate | -0.37% | -0.37% | 2.96% | 2.94% |
| Term of share options | 10 years | 10 years | 10 years | 10 years |
| Expected life of share options | 7 years | 7 years | 7 years | 7 years |
| Model used | Binomial | Binomial | Binomial | Binomial |
The expected life of the stock options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur.
The expected volatility reflects the assumption that historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.
Since no options of the company are traded on derivative exchanges, the expected volatility cannot be determined from the implied volatilities of traded options of Nagarro SE. Historical share prices for the newly listed Nagarro SE were not available at the time of valuation of Tranche 1 in 2021. Also, not sufficient time after listing has elapsed at the time of valuation of Tranche 2 (a) and Tranche 2(b) in 2023. Therefore, the historical volatility based on price movements of comparable listed companies (peer group) in the past is used as an estimate for the expected volatility. Based on this peer group and with an average exercise period of seven years, Nagarro SE has a historical volatility of 34.27% for Tranche 1; 37.90% for Tranche 2 (a) and 37.80% for Tranche 2 (b).
| 2022 | |||
|---|---|---|---|
| Number of stock options | Weighted average exercise price (EUR) |
Number of stock options |
Weighted average exercise price (EUR) |
| 425,000 | 95.35 | 440,000 | 95.35 |
| 150,250 | 109.00 | - | - |
| (3,500) | 99.56 | (15,000) | 95.35 |
| - | - | - | - |
| - | - | - | - |
| 571,750 | 98.91 | 425,000 | 95.35 |
| - | - | - | - |
| 2023 |
On January 16, 2023, Nagarro rolled out the MyN (My Nagarro) program, an Employee Share Participation Program ("ESPP"), globally for every Nagarrian wherein for every multiple of 3 shares purchased and held by the employees ("investment shares") for 3 years (while staying a Nagarrian), 1 matching share will be given from Nagarro. The program has two offerings planned for this year with an annual maximum contribution of Eur 2,500 per employee, for all employees, and a higher contribution limit offered by exception in certain special cases.
Since matching shares are equity instruments of Nagarro SE, ESPP is accounted for as an equity-settled share-based payment scheme in line with IFRS 2. Once all eligible employees have decided upon their yearly participation, the fair value of the equity instrument granted is calculated and fixed for each tranche on the basis of proportional share price at the grant date taking into consideration the discounted estimated dividends.
The development of acquired investment and estimated matching shares, as well as the parameters used for the calculation of the fair value are as follows:
| Window 1 (Feb 2023) | Window 1 (May 2023) | |
|---|---|---|
| Investment period | February 8, 2023 - February 20, 2023 | May 8, 2023 - May 21, 2023 |
| Matching date | February 20, 2026 | May 26, 2026 |
| Acquired investment shares | 12,834 | 447 |
| thereof forfeited investment shares | (162) | - |
| Estimated matching shares | 4,278 | 149 |
| thereof forfeited matching shares | (54) | - |
| Share price at grant date | € 126.16 | € 80.00 |
| Fair value : Discount per investment share | € 124.40 | € 79.35 |
| recognized estimated dividend | € 0.00 | € 0.00 |
| Fair value : matching shares on date of reporting | € 53,337 | € 330 |
| recognized discounted estimated dividend | € 0.00 | € 0.00 |
Against the grant of these equity-settled stock options and stocks under ESPP, Nagarro has recognized an expense of kEUR 1,428 (June 30, 2022: kEUR 1,589) and recognized the corresponding amount in capital reserves (refer Note C.5 Equity).
The reconciliation of EBITDA (as reported in the interim condensed consolidated statements of comprehensive Income) to Adjusted EBITDA is presented below:
| Six-month period ended June 30 | 2023 | 2022 |
|---|---|---|
| Total | Total | |
| kEUR | kEUR | |
| EBITDA | 58,107 | 67,249 |
| Exchange loss (gain) on purchase price components | 0 | 55 |
| Share based payment expense | 1,428 | 1,589 |
| Acquisition costs | 803 | 251 |
| Adjusted EBITDA | 60,338 | 69,144 |
| North America |
Central Europe |
Rest of Europe |
Rest of World |
Total |
|---|---|---|---|---|
| 2023 | 2023 | 2023 | 2023 | 2023 |
| kEUR | kEUR | kEUR | kEUR | kEUR |
| 167,232 | 126,369 | 62,343 | 100,439 | 456,384 |
| - | - | 115 | - | 115 |
| 167,232 | 126,369 | 62,458 | 100,439 | 456,498 |
| (124,539) | (94,787) | (41,333) | (76,936) | (337,595) |
| 42,693 | 31,582 | 21,125 | 23,503 | 118,903 |
| 26% | 25% | 34% | 23% | 26% |
| (58,565) | ||||
| -13% | ||||
| 60,338 | ||||
| 13% | ||||
| (2,231) | ||||
| 58,107 | ||||
| 13% | ||||
| North America | Central Europe |
Rest of Europe |
Rest of World |
Total | |
|---|---|---|---|---|---|
| Six-month period ended June 30 | 2022 | 2022 | 2022 | 2022 | 2022 |
| kEUR | kEUR | kEUR | kEUR | kEUR | |
| Revenue | 155,186 | 110,624 | 47,497 | 82,274 | 395,581 |
| Own work capitalized | - | - | 89 | - | 89 |
| Total performance | 155,186 | 110,624 | 47,586 | 82,274 | 395,670 |
| Cost of revenues | (108,447) | (83,190) | (34,113) | (59,371) | (285,121) |
| Segment gross profit | 46,739 | 27,434 | 13,473 | 22,903 | 110,549 |
| as % of revenue | 30% | 25% | 28% | 28% | 28% |
| Selling, General and Administrative expenses |
(41,404) | ||||
| as % of revenue | -10% | ||||
| Adjusted EBITDA | 69,144 | ||||
| as % of revenue | 17% | ||||
| Special items | (1,895) | ||||
| EBITDA | 67,249 | ||||
| as % of revenue | 17% | ||||
The items "Cost of revenues" and "Selling, General and Administrative expenses", both not including depreciation and amortization, reconcile to income and expense presented in interim condensed consolidated statements of comprehensive income as follows:
| 2023 | ||||||
|---|---|---|---|---|---|---|
| Six-month period ended June 30 | Thereof | |||||
| Costs by nature |
Cost of revenues |
Selling, General and Administrative expenses |
Special items |
Total | ||
| kEUR | kEUR | kEUR | kEUR | kEUR | ||
| Cost of materials | 43,220 | 43,220 | - | - | 43,220 | |
| Staff costs | 318,447 | 284,228 | 32,791 | 1,428 | 318,447 | |
| Other operating expenses | 47,073 | 10,146 | 36,124 | 803 | 47,073 | |
| Impairment of trade receivables and contract assets |
302 | - | 302 | - | 302 | |
| Other operating income | (10,651) | - | (10,651) | 0 | (10,651) | |
| Total | 398,391 | 337,595 | 58,565 | 2,231 | 398,391 |
| 2022 | ||||||
|---|---|---|---|---|---|---|
| Thereof | ||||||
| Six-month period ended June 30 | Costs by nature |
Costs of revenues |
Selling, General and Administrative expenses |
Special items |
Total | |
| kEUR | kEUR | kEUR | kEUR | kEUR | ||
| Cost of materials | 38,343 | 38,343 | - | - | 38,343 | |
| Staff costs | 265,431 | 239,766 | 24,076 | 1,589 | 265,431 | |
| Other operating expenses | 35,317 | 7,012 | 28,054 | 251 | 35,317 | |
| Impairment of trade receivables and contract assets |
970 | - | 970 | - | 970 | |
| Other operating income | (11,641) | - | (11,696) | 55 | (11,641) | |
| Total | 328,421 | 285,121 | 41,404 | 1,895 | 328,421 |
The "Special items" relate to non-recurring items, purchase price adjustments, share based payment expenses, and acquisition costs etc., which are included in note F.5. Adjusted EBITDA.
No contingent liabilities and guarantees existed during the current period and previous year.
In the matter of the legal proceedings of Nagarro Inc. ("NI"), a company of Nagarro, with one of its clients, which was explained in detail in the Annual Report for 2022 in "G.5 Contingent liabilities and guarantees", there is no further development to report. No contingent liabilities and guarantees existed during H1 2023 and financial year 2022.
Nagarro ensures that there is always sufficient liquidity, and the capital structure is balanced. These objectives are achieved by focusing on a strong business performance and receivable management. Decisions regarding the acquisition of subsidiaries are made after consideration of the impact on the capital structure and the effects of the transactions on future years.
The key figures used for capital management with respect to Nagarro at the respective balances sheet dates are as follows:
| Jun 30, 2023 | Dec 31, 2022 | |
|---|---|---|
| Total | Total | |
| kEUR | kEUR | |
| Liabilities to banks | 273,577 | 216,537 |
| Lease liabilities | 52,162 | 55,788 |
| Cash | (99,334) | (110,163) |
| Net debt | 226,405 | 162,162 |
| Adjusted EBITDA for the first half of the year | 60,338 | 69,144 |
| Adjusted EBITDA for the second half of 2022 | 79,318 | 79,318 |
| Adjusted EBITDA for last twelve months | 139,656 | 148,462 |
| Debt ratio (Net debt to Adjusted EBITDA) | 1.6 | 1.1 |
| Total assets | 685,964 | 619,041 |
| Equity | 172,873 | 165,578 |
| Equity ratio (% of total assets) |
25% | 27% |
In the period after June 30, 2023 and the date when the interim condensed consolidated financial statements were authorized for issuance by the Management Board of Nagarro SE, the following events of particular importance exist:
Nagarro is in the process of merging its two legal entities in Denmark. The merger will take full effect in Q3 2023. Further, Nagarro has started the process of merging two of its US legal entities and two of its Australian legal entities, which are expected to be completed in the second half of 2023.
After June 30, 2023, and the date of this report, Nagarro SE has repurchased 148,681 of its own shares with a total purchase price of Eur 12.8 million, amounting to a total of 342,687 repurchased shares with a purchase price of Eur 29.1 million under the share buyback program started in May 2023.
Section C Important information
To the best of our knowledge, and in accordance with the applicable reporting principles for half-yearly financial reporting, the interim condensed consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim management report of the group includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group for the remaining months of the financial year.
Annette Mainka Manas Human Vikram Sehgal
September 5, 2023: Commerzbank and ODDO BHF Corporate Conference 2023, Frankfurt a. M.
November 14, 2023: Publication of Q3 quarterly statement as of September 30, 2023
November 28-30, 2023: German Equity Forum (Deutsches Eigenkapitalforum) 2023, Frankfurt a. M.
Please also refer to the Financial calendar in the IR section on our website.
Nagarro SE Baierbrunner Str. 15 81379 Munich Germany
Phone: +49 89 785 000 282 +49 89 231 219 151 (Investor Relations) Fax: +49 32 222 132 620 E-Mail: [email protected] [email protected] (Investor Relations)
Manas Human (Chairperson), Annette Mainka, Vikram Sehgal
Chairperson of the Supervisory Board: Carl Georg Dürschmidt
Registration Court: HRB-Nr. 254410, Amtsgericht München
VAT ID: DE 815882160
Responsible for the content acc. to Section 55 (2) Interstate Broadcasting Agreement RStV: Manas Human
Investor relations: Gagan Bakshi
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