Sopra Steria Group Un/Adr

Good morning, ladies and gentlemen, and welcome to this conference call on Socrates Area's Q3 2024 revenues. The conference is recorded this morning. If you wish to ask a question, then please dial star 1 on your telephone keypad. Today, we have Mr. Cyril Malarget, CEO, and Etienne Duvigneau, Group CFO. I'll hand the floor to Cyril Ménager, over to you. Thank you. Good morning. Good morning, ladies and gentlemen. Welcome to this conference call to go over Sopra Seria's Q3 2024 revenues. I'm here with Etienne Duvigneaux, our Group CFO, and I'll be leading the session with him. I'll start with a few general comments on our performance over the quarter, then I'll go over the figures for our four reporting units. Then we'll finish with a traditional Q&A session. So no big surprises here. The IT market, broadly speaking, adopted a wait-and-see attitude with weak momentum over the quarter. Against this backdrop, the Q3 revenues was resilient and was 1,356.9 million euros, so total growth of 0.9%. Excluding changes in scope and currency fluctuations, revenues were stable. Based on this, we're confirming our annual target for organic growth, so revenue relatively stable for 2024. With regards to trends by vertical market, just a reminder, first, they were not exposed to the automotive sector. Next, for the aerospace sector, it As expected, the assumptions made in July on changes in our revenue with Airbus in the second half were confirmed without any major additional deterioration. So Q4 should be the low point in our business with Airbus. This level will be able to stabilize around €100 million per quarter. In September, we've confirmed with Airbus all our positions. as one of their best-in-class IT providers, and several large framework agreements have been renewed and extended for the next five years. The public sector, it was resilient with decent trends. Financial services were more or less stable. Our business is progressing significantly today. in certain countries like the UK. And then finally, throughout the quarter, we renewed some significant positions in the transport, aerospace sector, and I've just mentioned that, the public sector, and defense. Now let's move on to France. France generated 571.2 million euros, so down organically by 1.2%. Hybrid cloud and technology services were resilient with growth of 3.3%. Consulting and systems integration contracted slightly by 0.3%. And then PLM business, which is highly exposed to the aerospace sector, was down by 12.8%. In terms of vertical markets in France, Defense and the public sector grew over the quarter. Then financial services, energy, telco, aerospace all contracted. It should be noted that the negative impact of aerospace on France's growth was just over a point. Now if we go to the UK, the UK generated 240.2 million euros, so organic growth of 2.3%. The most buoyant verticals were financial services, government and transport, and then our NHS SBS platform. Business on the SSCL platform has been impacted still by the SNAP election and the new government, and this situation may persist into Q4. Now if we go to Europe. generated revenue of 467.7 million euros, so a slight organic contraction of 0.5%. The most buoyant entities were Spain, Italy, Scandinavia, with growth rates between 5% and 8%. Revenue in the Benelux contracted slightly, and Germany fell by about 5%. Now, solutions. The solutions reporting unit generated in Q3 revenues of 77.8 million euros. Organic growth of plus 3.9%. So human resources solutions generated growth of 7.5%. And then the real estate solutions contracted by 2.7% in accordance with our forecast. So to conclude... Revenue in Q3 was resilient against an overall backdrop of uncertainty and a wait-and-see attitude. The market isn't showing any signs of a recovery in the short term. And the basis for comparison with Q3 in 2023, more unfavorable in Q3. So as a reminder, the UK was up 13% in Q3 2023, thanks to SSTL, which itself was up 25%. And then the solutions activity also grew 8%. So against this backdrop, we're very much focused on our business without losing sight of the group's transformation. And this is why we took the decision to dispose of the software banking software activity. And this decision clearly repositions Software Theria as a European consulting and digital services company. The transaction was finalized on the 2nd of September and this has enabled us to re-import our balance sheet and it's given us greater financial flexibility by collecting over 410 million euros. The main areas of work for the short term are the shifting gear in consulting, value ramp-up for our tech offers and then the change in our operational model. With regard to our operational model, we've just announce the appointment of a chief operating officer who, alongside me, will be responsible for conducting this change, and this is a long-term change. So we're confirming our annual objectives for organic growth, gas generation, and then operating margin with a rate of operating margin at least 9.7%, so up when compared with 2023. So now I'd like to suggest that we move on to the Q&A session. Thank you, gentlemen. Ladies and gentlemen, please dial star 1 on your telephone keypad if you wish to ask a question. So we've got first question from Laura Medea from Morgan Stanley. Two questions for me, please. The first is, given what you've seen on the market, What do you think about growth for 2025, or is it too soon to take a stance? And then we've seen that you're up 5% with compared – up 5% in terms of headcount. So can we have some more information on recruitment? So, yeah, growth for 2025, it's a little bit early to take a stance on this. We haven't got that much visibility yet. It's probable that the market will keep this wait-and-see attitude over the first quarter, and I can't see the aerospace sector recovering before the second half of 2025. And then with regards to headcount, this growth includes changes in scope, so integration of Ordina. If you look at constant scope from one year to another, Headcount is stable and then quarter to quarter between the end of September and June, it's down 1%. Okay, thank you. Next question from Nicola David from Oddo. Good morning. Thank you. Thank you for this presentation in detail and the information on Airbus. So I do have a question on Airbus just to understand. To stabilize at 100 million euros per quarter, what are the assumptions based on your market share in this account and the natural evolution in the budget or the market share that you're capable of winning? So what can you tell us about the market so that you can perform in this level in Q4? And then... Q4 more broadly speaking what could be the range of growth so if we've understood flat growth for the full year so more or less 30-40 points on the one side so there's a bit of room for manoeuvre here so 4 plus 1 5 what's kind of a realistic level here with regards to the range. That could be quite interesting to have some more color here. And then what about the bench? Are there any contracts or any market segments where you've got a high level of bench? Have you had to implement specific measures to uphold your margin? Thank you. So the first question on Airbus... Yeah, so we've... worked on this. We've had good news with the renewal. Over the last couple of weeks, we've had various framework agreements, all of our framework agreements renewed with a five-year visibility range. So we're not going to have to generate exceptional performance. We're just going to have to deliver what has been planned with Airbus. Obviously, it depends on Airbus, but we are at this level based on what we've signed. Then for growth in Q4, so we're anticipating slight negative growth in Q4. It's not a change in the market. Obviously, the market isn't improving, but it's not deteriorating either. So we're not exposed to the automotive sector. So it's more a basis for comparison because we've got a high basis for comparison with the U.K., 23% plus 13%, and then the solutions as well. So we're anticipating a slight contraction in Q4. And then for bench levels, it's quite stable. Bench is around 5%. It's not changing between the first half, second half. Why not? Because We manage this very closely. We manage recruitment very closely. We adapt this weekly on a detailed basis, and we're compensating for the attrition rate, which is, in fact, down. So today we haven't got an inflated headcount with regards to the situation. Claire, thank you very much. Next question from Antonin Baudry from HSBC. Good morning. Two questions. With the current environment, are you still ramping up the value of your services? And what about the services that were the price in your strategy here? Have you got the capacity to keep on increasing your margin and bearing in mind your level of revenue for next year. Thank you. So with regards to the first question, ramp up in value or price increase, yes. We've still got this trend. So we've got the reference. I can give you the reference of France over the first nine months of the year for consulting and integration sales prices. At the end of September, we're up 4.5%, so that is significant. This is something that we're able to do. We obviously ramp up the value of our services. Are we going to be able to uphold this momentum in the coming months? To be confirmed, obviously, depending on the context, But the underlying work that we've been doing for several years now is paying off right now. Our capacity to increase our margin in 2025, obviously I'll give you a reminder of the levers that we've been working on for three years now with regard to an improvement in margin over the past three years. We've got the transformation which we've initiated, so an improvement of 0.4% so that we can be positioned at 9.7%. So obviously sales prices increasing the value that we're producing, increasing our growth margins, so our contracts. We're up nearly 1% in the first half thanks to our portfolio management methods. That's how we manage our projects. Then we've got the 2023 acquisitions, which are also delivering progression this year. That's quite interesting. So we're expecting more improvements next year on that as well. We adapt recruitment, and then we've got the disposal of banking. So there are various different levers. So with regards to 2025, it's too early to give you more details on the operational margin for 2025. Thank you. Next question from Laurent Dore at Quai Perchevreux. Over to you. Yeah, good morning. I've got Four quick questions now. First, if we could just look at Q4 quickly to make sure I've understood. So excluding the basis of comparison for the UK, for everything else, we should expect something that's quite similar to Q3. And then next point, can we just come back to Ordinus? What about the slight negative growth? Are we not expecting something stable for the Netherlands? And then a third question on HR. If we look at the performance, given the economy, what is supporting the growth over previous quarters? And then finally, could we just focus on performance in the public sector in France? What has meant that you've been able to generate this level of performance? So Q4 versus Q3, excluding France and the UK, yeah, I think we've got quite a similar context. I don't see there being any disruption between Q3 and Q4, obviously excluding the comparison basis that I've already mentioned. And then with regards to Ordina, I think we've got slight negative growth with regards to the market, but this is quite contained. You want to add something low single digit. So in the Netherlands and Belgium with levels of growth that are quite similar. And then HR, I haven't understood the question yet. because the growth in headcount is obviously linked to ordinate. If we look at that on an organic basis, we're stable or – no, sorry. Oh, sorry, we're talking about HR solutions. So HR solutions, well, we've taken some decisions which are taking time, but this activity – We're generating revenue with added value offers that we're pushing. So in the digital domain, we've got our HR4U offer. We've got new services that we're providing with Gen AI. So we've got things in the pipeline. And then we've got some little gems which are helping us feed into growth. So there is no specific contract yet. That explains the growth. No, there's no one significant contract. So it's more the portfolio. Yeah, it's the portfolio. So it is quite a specific market HR solutions. We shouldn't extract that on an ongoing basis we'll be at 7%. It's a market that's at between 3% and 4% over previous years. And then the public sector in France, So why? Why are we at this level? Well, we've been modest. We've been resilient. There's two major areas in the public sector. We've got the ministerial departments, which is going down. And then we've got the social side of things, where we've got major customers, the French welfare, the benefit system, different customers, France Pavé, that sort of contract, where we've got big growth here. We're the number one player here. So that means we can compensate. So in France, public sector, could you talk about the last quarter? What is the percentage of revenues in France? So the percentage of revenues in France, so we're about 17%. Thank you. Thank you for the question. Just a reminder, if you want to ask a question, please dial star 1 on your telephone. Keypad, next question from Emmanuel Taho at Gilbert DuPont, over to you. So two questions, consulting, which is quite resilient over the quarter, given the context. Can we have a little bit more explanation here? Are we worried about the upcoming quarters? Can you see any changes here? And then the next question, financial services, can you see differences between France and the UK, differences in the market between the two geographies? Thank you. So with regards to consulting, So if we go back to France, I indicated that consulting and integration was down 0.3%. So within this, consulting contraction was slightly stronger, so about 5%. With regards to the market, there's a gap with the market. We're aligned with our market in this regard. And then financial services, This obviously momentum that is underway in the UK, we started nearly from scratch, so it's quite normal that there's higher levels of growth than in France because our starting point was quite significant in France. When we look at the financial sector in France, revenues distributed across six major banking institutions and some of them enable us to keep the ship afloat, but there are disparities between the different institutions, between different organizations. And then Airbus, can you just give a reminder of 2023 revenue levels? So, for Airbus in 2023, we did 500 million, and in 2022, we did 400 million. Very clear. Thank you. Thank you. Next question from . Three questions. So, first of which is Airbus. Can we just come back to the concept of the framework agreement that had been signed for five years, either been renewed or extended? So at this stage, you're not generating growth. But if we look at everything that's been signed and then if Airbus starts investing again, what will be your level of revenue? Obviously, we're taking into account everything you've signed or renewed. So you've got indications around the €500 million, so the revenue levels from 2023. And then, so the wait-and-see attitude that we've seen on investment today with the SSCL platform, is this, is that like the idea of catching up? Will we be catching up in 2025? So making up for this kind of wait-and-see attitude, which is slow things down in 2024, which is slow project down or slow recruitment down. So will there be a catch-up in terms of volume? And then the last question was on the centers of excellence, so where you've gathered together skills to better sell them across a group. Could you – Could you give us a bit more color on this initiative? How many people are we talking about? What are the targets that you've set yourselves in terms of headcount for these centers? So let's start with Airbus. It's difficult to say. We've obviously signed the renewal of our existing positions, so that's good. But obviously this is independent of the pace that's been set by Airbus So I read their announcement, their recent announcement, and it's not necessarily going to have an immediate positive impact on our business. I'll remain quite cautious here. The question is, can we go beyond 500 million? Right now, as I'm speaking to you now, the answer is no. Can we extend? No, the question was, can we extend our positions? Can we extend positions? market share can we quantify what this represents and what it could be in the future so these are references we're not necessarily certain we don't have a firm level of spending for Airbus because they obviously have the possibility they've got flexibility with regards to their orders so we haven't got firm orders for the next five years from Airbus so we we know that it's going to fluctuate. So can you quantify the total Airbus market? So what about the total market share? Is it up or is it down? Well, actually, when I give you figures, I do try and stick to them. But in this case, we're dependent on Airbus, so I want to wait and see how they behaved. Now for SSCL, will there be a catch-up in 2025? Difficult to say, Etienne. Yeah, the British government presented their budget yesterday, so we'll wait and see how that pans out. What we can say is that we can see willingness to reinvest in public services, so that would benefit our business in the UK, not just SSCL, but in the health domain as well. But this is just starting now. So we're quite cautious in the short term. As Cyril said, we can't see recovery. The budget hasn't been voted yet. So spending hasn't been set across the different administrations. So that's where we stand today. That's what we can say about that. And then for the centers of excellence, this is a broader question. This regards our operational model. So in this regard, I'd like to say let's wait and see and hear about that more on the Capital Market Day on the 12th of December. Thank you very much. Next question from Nicola David from Oddo again. Thank you for taking my follow-ups. So in the banking sector, what's it looking like in terms of momentum Are you seeing optimism in the sector, which is obviously experiencing negative growth at the moment, but could you see a return to more flat or even growth volumes? How do you see things? What are you anticipating here? So in France or in other regions where you're exposed as well. So what's the momentum in this sector? And then could we have an update on the UK contracts that we're supposed to start next year? Have you got any signs either in one direction or another? Do you think it's going to start or do you think it's going to be postponed? So financial services. Our positioning is obviously focusing on retail banking. So I think we're going to have to be quite modest when it comes to our optimism here. So our retail banking customers are obviously very optimistic. But this being said, banking organizations are transforming. They are becoming more digital. So the underlying trend is there. I am confident that in coming years, we should have a significant business here and we should be in growth for financial services. Now for the project that we mentioned in July in the UK, which was pushback, we're confirming this shift. So the shift, which would be start of 2025, so there's nothing, no news between July and now. We're still using the same assumptions. Thank you. Thank you for your question. No more questions. on the French line, so now we'll head to the English line. Thank you.

Thank you. We will now take our next question from . Your line is open. Please go ahead.

Yes, hello. Good morning. Two additional ones from my side. First one on contract renewals. We understand that contract renewals are a permanent process inside of your organization. Can you shed some more light on what you are waiting for the final two months regarding renewals or prolongations? Maybe a hint to the number of negotiations or the contract value you are envisaging here. Second question on the public sector. Do you notice any activity by European governments that are planning to outsource larger administrative processes that are currently handled by internal workforce at all, or is this rather a topic for the coming years?

So with regards to your first question on contract, renewal, so positions in Q4. We've got a pipeline with renewals, which is looking good. We've been successful up until now when it comes to renewing our positions with what we've done in transport. We've mentioned Airbus, we've mentioned the public sector, and then defence as well. So we're quite confident with regards to our capacity to be successful in the last quarter. Then with regards to outsourcing, so our customers in administrations in the public sector or any others, I can't see any disruption with regards to what we've done in the past. We're in keeping with previous trends.

Thank you.

We will now take questions from Aditya Budavarapu from Bank of America. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking my question. A few from me. Maybe I can go one by one. Firstly, could you just maybe give some color on maybe just more Airbus or aerospace in general? You said you don't expect that to return to growth. for H2 2025. So could you maybe just talk about how you think about the shape of growth in that segment for next year? Maybe, you know, when you expect that to maybe start to see, when do you think you'll have some more visibility on that?

So growth Over this growth in the second half of 2025 with Airbus, but it's too soon to be talking about it now. We need to get the year started. Obviously, we won't have growth in the first half, we're sure of that. But we do consider that there may be a possibility for a recover in the second half, but it's too soon to have clear visibility over this.

Okay, understood. Thank you. Second question. So you recently appointed a CEO, as you mentioned. So could you maybe just talk about some of the key areas of focus for him over the next few years and what are the additional changes he can bring in terms of improving the operational model? What are your key focus there? Well, we –

Yes, so this is a key decision. So we've appointed a COO. We've been working together for quite some time now, but this is a decision that we took to structure our transformation. So this is long-term work. Just as a reminder... Our goal is to support our customers' transformation through tech and AI. So three areas of transformation where we want to have better structure, so shifting gear and consulting, technological offers, and then this operational model, which will mean we can accelerate our go-to-market. So with this model, we want to structure the European group, which is standardized, consistent, and we want to ensure this structural level of performance. So we're going to implement a more standardized operating model, which is more coherent, so we can deliver more value to our customers. And we want to be able to offer all of our customers our entire portfolio. So this is a long-term measure that we're taking, and we want to be capable of implementing both technological capacities, which I would call horizontal, and which can be accessed by the different countries and organized by a major area of activity. So that is the priority for our COO.

Okay, that's very helpful. Thank you. And then maybe one last one on the Capital Markets Day, which is coming up December. Can you maybe just say a couple of lines on what you should expect, again, what are the main areas of focus, are you going to talk about, you know, give updates on the return targets, capital allocation, etc.

So, obviously, we're not going to go into the detail of everything that we'll be announcing during the CMD, but the major topics that we will be addressing are a reminder of our strategy, our areas of transformation, what is the strategy with regards to consulting. We'll be thinking about our targets in terms of capital allocation, and we'll just be giving some more information on the company's transformation in the midterm, but we won't be going into the details of it today.

All right. That's very clear. Thank you.

Yeah, no further questions. So I will hand this back over to the speakers to conclude today's conference.

Yeah.

So thank you very much. Thank you very much for taking part and for listening this morning. And I hope you have a great day and we can finish the session there. Thank you very much and goodbye.