Sopra Steria Group Un/Adr

Good morning, ladies and gentlemen. Welcome to this conference. I am delighted to present the H1 results with Etienne Du Vigneault, Group CEO. So we will have the agenda as follows. We'll have the highlights of H1. Then I will review the operating situation by reporting unit. Then Etienne Duvenieu will present the financial results for H1. I'll come back to priorities and objectives for 2022. Then we will review the proposed acquisition of CS Group. And then finally, we'll have time for a Q&A session. So, as a summary, I would say our performance was solid, solid over the first half. It puts us on track to achieve the objectives that we set ourselves at the start of the year for 2022. The revenue was 2,543.8 million euros, 7.3% organic growth. Operating profit on business activity was 203.1 million euros, so 8% of revenue. Net profit attributable to the group was 112.3 million euros, so 32% organic growth when compared to 30 June 2021. Free cash flow generated was 66.3 million euros compared with the 61.9 million euros in H1 last year. Net financial debt contracted and was 344.9 million euros, so 0.75 times EBITDA. And our balance sheet was also reinforced thanks to positive changes in pension funds, especially in the UK, where we finished the first half with a surplus of 50.1 million euros compared with a deficit of 57 million euros on the 30th of June 2021. So the first half of the year was highly eventful, which illustrates the group's transformation. Firstly, in terms of sales, I would like to mention that we've reinforced our relationship with Airbus, 200 million in turnover in the first half. We were indexed to expand our scope of intervention to engineering and functional design. Another example is the Newwood Consortium. This is a consortium which brings together EDF, Technic Atom, Neville Group, Framerton and other groups aiming to build and run a new nuclear reactor concept which is more compact. So we were chosen to implement an information system blueprint and to run change management. In terms of financial services, I want to mention some good changes at SBS. So 12 new references here for new digital offers and for SaaS offers as well. In terms of market recognition, we've been indexed in various listings. so for financial services and digital services, so for artificial intelligence, cybersecurity, IoT, and also we've expanded our certifications in the cloud domain. We are now a qualified managed services provider for Amazon, Google Cloud, Microsoft Azure, and then for Oracle as well. In terms of cloud, we should also note expansion of our partnership with OVH Cloud with new services today because we're offering our customers an open source offering for AI rollout at scale with an industrial and secured approach. In terms of sustainable development, I'd like to mention the gender equality standard which was delivered by Bureau Veritas with regards to establishment of equals opportunity policy. Then I'd like to remind you something that we're very proud of. As a founding member, we took part in the inauguration of the French Cyber Campus, which already has about 50 of our employees working there. So the market momentum, as I've mentioned, was very positive throughout the half of the year. Organic growth of 6.5% in 2021. Sorry, 6.4, 6.5% in Q1 2022. And we saw an acceleration in growth in the second quarter, so at 8.1%. At this stage, we haven't identified any signs of a slowdown in terms of customer demand, which remains sustained. Our growth fundamentals are solid. There are three factors that illustrate this. The first... Over the last two decades, we've had average organic growth of 6%. The second factor is that the IT market is growing structurally with three key drivers, go to cloud, digitalization of processes, and obviously cyber security challenges as well. The third factor is value enhancement. And behind this, we've got an increase in sales prices. I can see two factors that influence this. Strong demand from our customers, but also our value enhancement strategy, which is starting to pay off, especially for our consulting and digital activities. Obviously, in this dynamic market, we are prioritizing human resources. We're spending a lot of energy on attracting and retaining talent. In the first half, our workforce grew by 5.6%. thanks to regular growth in headcount, over 600 every quarter. In the first half of the year, we recruited 6,843 people, which represents just over 60% of our full-year recruitment target. Now, if we look at the attrition rates, It's 19%, so obviously higher than rates observed in H1 2020 and 2021, but it is under control and at the same levels as H1 2018 and 2019. Now, with regards to operational situation, Group's performance improved in H1 2022 with an operating margin on business activity at 8%, so 0.8% increase when compared with 30th of June last year. And we've seen a clear increase when compared with the first halves in 2018 and 2019. This comes with an increase in free cash flow. The free cash flow is resolutely positive now as of the first half of the year and it has been for three years. In H1 2022 it was 66 million euros compared with 62 last year. I've already mentioned momentum in our sector, which is sustained, but we know that the macro global context is fragile, so we do remain attentive. And against this backdrop, I think it's important to give a reminder of the group's profile and its resilience, which draws on four different pillars. Customer focus, recurring revenue, our sector mix, and then flexibility. Our customer strategy, as you know, is a focus on 100 strategic customers. They represent two-thirds of the group's revenues. And for these strategic customers, we are developing a close working relationship over time, working closely together in the field. And this means that there's less volatility with regards to our business relationships. Now with regards to recurring revenue, recurring revenue for the group represents over 40% of the group's revenues if we take into account BPS, infrastructure management, application maintenance and then software maintenance as well. With regards to our sector mix, I want to highlight the share of the company's revenue in the public and parapublic sector, which is over 35%. This is a sector which is obviously less sensitive to conjunctural factors. And then finally, we demonstrated this during COVID. We have genuine capacity to adjust our flexibility with regards to resources. So subcontracting, which is obviously a flexibility lever, and this has come back to pre-crisis levels. Now, if we review operating performance, on this slide, you've got revenue. 2,543.8 million euros, organic growth of 7.3% and a margin of 8% compared with 7.2% in the first half 2021. And we've got this information by reporting unit. I'd like to suggest that we review each of these reporting units. For France, first half was solid. Strong growth returned to pre-COVID margin levels. Organic growth was 9.8%. Slightly above this, 10% in the second quarter. Business was driven by our PLM activity, which grew by 40%. Cyber security, which generated 16% growth, and consulting, which increased by over 14% as well. To a lesser extent, systems integration and IT infrastructure management contributed to growth. And then we saw that the most buoyant vertical markets were aeronautics, defence and transport. Operating margin on business activity was 9.7% compared with 8.3% last year. So an increase of 1.4% compared with 9.3% in the first half of 2019. So this obviously demonstrates the fact that we've come back to pre-COVID performance levels. I'd like to suggest that we review the UK now. The UK had a good first half with operating profit at 10.5%, so 1.8% increase when compared with 2021. Organic growth was at 5%, mainly driven in the second quarter. So 10.8%. So dynamic quarter, stronger than expected. And it was driven by our service platform business and growth in our joint ventures, SSCL and NHS SBS, which posted growth of 9.7% in Q2. Private sector improved also. and generated slight growth in the second quarter. So the outlook should be a return to growth in the second half of the year. That's all for the UK. Now if we move to other Europe, so the first half had good organic growth, 8.2%, with Scandinavia and Benelux generating double-digit growth. Operating profit on business activity contracted down to 5%, and it was impacted by a contract in Germany where negotiations are underway. We don't anticipate any significant impacts of this contract in the second half. Revenue for SFT was 79 million euros with the same level of operating profit as H1 2021. Now, if we look to the future, obviously, if we We look to the future. We can see that all countries are on track to hit operating profit on business activity of 10%. Now we can move to Sopro Banking Software. The first half is aligned with the plan. We had two priorities, developing digital offers, which will generate growth in future years, and then progressive improvement in profitability. Revenue contracted slightly by 0.7%. This is due to a license impact. We see a greater seasonal effect than in 2021. We haven't changed our licenses targets for the full year. Subscription, maintenance and services grew by 1.4% and we've seen strong momentum on our new offers, our digital offers. So aligned with the plan. As a reminder, a year ago, we launched a five-year plan which aims to make 30 million R&D savings by 2025. This plan has delivered the first year.

Last year we had 4 million savings. Today we're on the right trajectory and we're keen to deliver the five-year plan. Consequently, the operating profit on business activity reached 4.1%, therefore up 1.3 points compared with the first half of 2021. Now, we're going to continue with other solutions. This is improved if we look at operating profit on business activity reaching 8.8%, therefore up two points versus H1 2021. Then organic growth reaching almost 5%. In particular, we've seen solutions for HR that are up 7.5% and then dedicated property solutions that have remained relatively stable. That's for property management, and therefore we are back to a profit level we had before COVID. Now I'll hand over to Etienne Duvigneau, who's going to talk you through the first half results. Thank you, Cyril. Hello, ladies and gentlemen. We'll start with the consolidated income statement for the group. Cyril's mentioned the main aggregates. Consolidated revenue reaching €2.543 billion, therefore organically up 7.3% versus last year. And operating profit on business activity reaching €203 million, therefore the margin rate is 8%. up 80 basis points versus H1 2021. Then between operating profit and business activity, the expenses in shares have increased and we have mainly a We share impact for 2022 that we denounced and that we rolled out in the first half, and more marginally as well, the other costs concerning the LTI plan 2021-22. Amortization of allocated intangible assets are up a little, and then the operating profit is 6.8% of total total. revenue. Other income and expenses, 10 million euros, therefore 0.4% of the half-year revenues. I'll come back to this in a minute. And therefore, operating profit is at 162.1 million euros. Therefore, 6.4% are revenues. 15% versus H1 2021. Between this line and the net profit, the cost of the financial debt is stable, less than 5 million euros, and other income and expenses, interest, for instance, burden, due to the UK situation, is less than €1 million. After taking into account tax and the percentage of equity-accounted affiliates, and after deducting the monetary interest, we reached €112.3 million for net profit, therefore up 32% compared to H1 2021. Then, if we look at other operating income and expenses, the net expense is €10 million for the first half In 2021, the figure included during the first half provisions that were restated for risks that are not repeated in 2022, yet we've seen a decrease in restructuring costs, totaling a bit more than 10 million euros versus 15 million euros for H121. And the tax expenses, 43 million euros for the half year, therefore, The effective tax rate is 27.3%. This includes company tax and also the expense for the French value-added tax. And we're targeting 27% for the full year, that is 2022. Let's have a look at the change in net financial debt compared to the end of December 2021. As you can see, we've reached €344.9 million at the end of June. Therefore, a slight increase compared with the end of last year. On the left of the slide, as you can see, we have free cash flow, which is solid, totally 66 million euros. That I'm going to give you more details about in a minute. We had more or less the same number as cash generation for H121. And therefore, we trust that we can meet the objective for free cash flow, which is an annual objective nearing 250 million euros. The group has also strengthened its balance sheet. On the one hand, we have a better control over our debt. The net financial debt to EBITDA ratio is 0.75 times at the end of June, and we've decreased as well the pension commitments in the UK, but also we've seen long-term interest rates have increased during the first half, and there was a favourable effect on the equity of the group. If we look at these two effects, we can say that the gearing ratio will be at 18% on the 30th of June 2022. And finally, the financing structure of the group. Here's a snapshot at the end of June. It's diversified. We have no major maturity in the short term. At the beginning of the year, we signed a new RCF contract totaling €1.1 billion. with a maturity of five years, and we can extend by two years, and available undrawn amount, which is good, more than €1 billion at the end of June, and €185 million in cash and cash equivalents at the end of the first half. Now I'll hand over to Cyril again, who's going to talk you through the priorities and objectives for 2022.

So, you've obviously all understood for the second half, our priority is to accelerate transformation with three areas of focus, first of which being human resources, our tech momentum, and then our consulting business. With regards to human resources, clearly we are working on reviewing our HR policy to make the group more attractive and then to also provide even more compelling results career paths for our employees. We're also working on our employee brand and respecting the promise made upon recruitment and we're also working on training programs. In particular we are focused on reinforcing manager training so that we can help them and support them so that we can drive this ambitious and transforming strategy. With regards to tech, behind this we've got reinforcement of our expertise, certification, leveraging the value of our job families and then we've got an acceleration in our implementation of our centers of expertise, so artificial intelligence, data, and then cloud. Finally, with regards to consulting, we are reworking our organizational model. We're also reworking the impact of the Soprasteria Next brand. And behind this, we have the challenge to ramp up our positioning in consulting, ramp up our sales price, and then our capacity to attract the best talent. Now, if we come back to objectives for 2022, we confirm our objectives with organic growth in revenue between 5% and 6%. In this area of focus, obviously, I've mentioned that demand is sustained, but we are observing the macroeconomic downturn. which has deteriorated, so we do have to be cautious, but we should be in the higher range of this guidance and we will reassess the situation after Q3. Other objectives now, operating margin on business activity between 8.5% and 9%, and we're also confirming our free cash flow of around €250 million. So now I'd like to come back to the proposed acquisition of CS Group. CS, as you know, is a leader in mission-critical systems, positioned on design, development, rollout of critical systems. It's one of the rare companies that are part of this landscape, and it's clearly positioned and recognized in this sovereign technology domain. Their major customers, we've got some big references here, defense, security, aeronautics, space, so we've got the Minister of the Armies, NATO, Home Secretary, Airbus for aeronautics, EDF, CEA for nuclear, and then for space, We've got ESA and then CNES. I'd also like to highlight that CS has got a strong innovation capacity. This is the company's DNA. So R&T teams are working with universities, research centers, and then they have top quality industrial partnerships as well. Revenue for 2021 was €237 million, 13% organic growth. Momentum, which is, for their positioning themselves, forecasting €258 million for 2022. They've got 2,241 employees and a margin of 4.1% compared with the 2.9% of 2020. sales momentum, which is clearly accelerating with orders of 487 million euros.