Sopra Steria Group Un/Adr

Good morning, ladies and gentlemen, and welcome to this conference call on Farber Stereo Q1 2025 Revenue. Just for information, this call will be recorded. If you would like to ask any questions, dial star 1 on your telephone keypad. Today, we're with Cyril Malaget, CEO, and Etienne de Vigneault, Group CFO. Now I'll hand the floor to Ms. Malaget. Over to you. Thank you. Good morning. Good morning, ladies and gentlemen. Welcome to this conference call to announce Supersteria's Q1 2025 revenue. I'm here with Etienne Duvigneau, Group CFO, and we'll lead this session together. I'll start with a few general comments on performance over the quarter. Then I'll talk about the figures for our four reporting units. Finally, we'll finish with a Q&A session. So revenue in Q1 2025 stood at 1,415 million euros, so down 4.7% when compared with Q1 2024. At constant scope and exchange rates, the contraction was 4.9%. So a performance that was slightly better than the forecast given in February of minus 5 to minus 6 percent. We can confirm that our aeronautics sector has stabilized since the fourth quarter of 2024. And as previously announced, the NS&I program in the United Kingdom has It started on the 1st of April. It got up to a good start under good conditions, and this program will contribute to revenue from the second quarter onwards. Furthermore, I'm happy to announce that six major contracts under the SSCL platform in the UK have been extended. So for an extra three years, which means their renewal date is now the end of 2028, and this secures business in the UK. Finally, we all know the backdrop. We have accelerated our decisions in defense and security. This activity is developing well at Supersteria for several years now and represents over a million euros in revenue, thanks to a solid business positioning and a differentiating position that we have in Europe. We're aiming at improving synergies and address challenges European Union and NATO challenges. So let's now look at the detail of each reporting unit. We'll start with France. In France, revenue stood at €602.6 million, an organic contraction of 4.9%. This market represents 43% of the group's business, and this was marked by a wait-and-see climate at the start of the year. As you know, political instability, France's lack of budget up until the end of February 2025, has slowed down decision-making and orders in the public and the parapublic sector. Most of the verticals contracted in terms of revenue. In the aeronautics sector, I can confirm that the quarterly volume has hit a low point. That's confirmed. And then... The contraction is set to ease off in France in the second quarter. In the United Kingdom, revenue stood at 219.3 million euros. So in full alignment with the information that we've previously given, the first quarter contracted by 10.8%. The public sector contracted while the private sector grew by And this change is explained by a particularly high basis for comparison for the FSDL platform. We had 20% growth in the first quarter of 2024, but there was also the expiration of an important contract in the public sector in the third quarter of 2024, while the NS&I contract was due to start in the fourth quarter of 2024, but this actually materialized on the 1st of this year. So this NS&I contract contract will contribute to revenue as of Q2. Now let's move on to Europe. Revenue stood at 512.1 million euros, an organic contraction of 3.3%. It should be noted that Spain and Italy were buoyant with growth rates between 5% and 8%. Scandinavia had quite a slow start to the year and then Germany and Benelux business contracted. But finally, for solutions, revenues stood at 81 million euros, organic growth of 2.5%. Solutions activities in the human resources domain, this is two-thirds of the activity in this reporting unit, was up 3%. And then real estate business contracted while specialized lending activities activity actually grew. So to conclude, Cure to One was aligned with our forecast or even slightly better than the guidance that we gave at the end of February. The environment is more uncertain today than it was just a couple of weeks ago. Against this backdrop, I just want to remind you that our profile means we're in a good position to hold firm European presence, lack of exposure to manufacturing or to export companies with the exception of aeronautics. Strong foothold in the public and parapublic sectors. And then a long-term local commercial strategy focus on our strategic customers that we're very close to. So this is why we can confirm our 2025 annual targets for organic growth, operating margin, and free cash flow. It should be noted that margin and free cash flow will be subject to greater seasonal variation this year with the second half, which will be better than the first half. Finally, obviously, we're very concentrated on our 2028 strategy, which aims to establish the group as a European leader in consulting and digital services and position the group as a credible, trusted alternative in Europe to global players. And as such, we're accelerating and we're continuing our transformation in terms of our offering, operating model, human resources, and industrialization. So there we go. I finished my presentation. I'd like to suggest that we open the Q&A session. So if you would like to ask a question, please dial star 1 on your telephone keypad. Our first question. is from Nicola David, OdoBHS. Good morning Cyril, good morning Etienne. Thank you for taking my question on Q1. I just want to understand what the momentum was when it came to discretionary business, this type of contract. So consulting, technical assistance in Q1? Have we seen a recovery month on month or have we seen any impact of the tariffs in the US? And we'd like to think about what the exit point will be and then for Q2, what are the implications here? We saw that consensus was down too. Are you confident with regards to your And then we've got another question on renewals, contract renewals in the UK. Is this all of the contracts that we had this year? The contracts that were mentioned in the press release, what does this actually reflect? What are the six contracts? Could we have a bit more information on volume or prices for these? Thank you, Nicola. So first question on momentum for discretionary spending. So it was flat. So momentum, low level of momentum compared to previous years. A figure that we can share is that consulting in Q1 was down 4%. So that's down. This is quite aligned with the rest of the group. There was a bit of momentum, but it wasn't super fast. In January, start of the year, meant that obviously budgets were being prepared, set up with our customers. Things got going. In France, obviously, we had the issue of the government's budget, which wasn't yet voted. So that meant the start of the year, January, was a little bit tough. Is it improving? Yes, mechanically it is. Is the market changing? I don't really think so. I don't see a market that's improving, but I don't see a market that's deteriorating either. So if I just give you a broader idea of the market today, we're starting to have visibility over Q2, which means that we can confirm Q1 was a low point in terms of quarterly growth. Visibility for H2, given the context, we don't have a great level of visibility. The guidance that we've provided, mid-range, obviously, this implies that the market would stabilize in H2 versus H1, and the low point, obviously, we have to take into account the possibility of deterioration in the market, and this is included in our plan. So, with the renewal of the SSCL contract, yes. all the deadlines at the end of the year, those contracts were renewed. So, for three years, were we under a great deal of pressure? Well, I thought it was a good renewal, quite standard when it comes to standard renewals. No additional pressure there when it comes to renewing those contracts. Thank you. Next question from Emmanuelle Perrot, Gilbert Dupont, over to you. Good morning. I've got two points. So the extension or the renewal of FSCL and the arrangements here, could you give us a little more color on the conditions here? that have been uh proposed so in terms of price and then things like ai is there any info more information uh that we could uh flag here for the current years and then next point on recruitment there was a slight acceleration in the drop in headcount over the quarter which regions are more specifically impacted here perhaps we could think about perspective, outlook for the coming quarters, coming semesters. So for SSCL, the renewal here, we published a press release, so you've got a bit of information in this press release. You've seen that it's a three-year renewal. It's not more than three years, so this is a renewal which will enable us to prepare a more significant at the end of these three years. So against this backdrop, obviously there was limited pressure on improvements in productivity. Things were under control. Then for the drop in headcount in Q1, yeah, between 2024 and 2025, year to year, headcount dropped by 1,200 people, basically essentially in France and in Europe. This is quite consistent. It's aligned with our revenue. Subcontracting was down 15% between Q1 2025 and 2024. So this is obviously something we're managing very closely. We don't want to find us in a situation where we have too large a headcount. So just to understand, the environment is more uncertain now. You've spoken about the pipeline, which seems to be well filled up. How is this transforming into orders? Have you got the same mindset here when it comes to pipeline? Is anything more difficult? Has anything changed? No. No, no changes. No changes. We've still got a pipeline that seems to be full up. We've signed deals. signed deals that haven't yet started. So we are waiting for some more orders that will come in the following quarters. But our pipeline is good quality, and I'll make exactly the same comments that I made previously. Thank you. So now we've got a question from Thomas Poutriot at BNP Paribas. Over to you. Good morning. Good morning. Just to start, Scandinavia, you said the start of the year was slower than last year. Growth rate was different. What about your pipeline? Are there any contracts that you're going to be ramping up over the year which will accelerate in the coming quarters? And then next, For attrition, attrition's increased slightly when compared with previous quarters, around 10% versus Q4. What's explaining this? Is it the market environment that's tough? And then the last question on NS&I, could you just help us give some more information about the contract ramp-up? Would it be reasonable to expect two or three additional points in the UK in Q2 or potentially an acceleration in terms of its contribution to the semester. So, Scandinavia. Yeah, start of the year was quite flat, a little less than flat. That's why we said it was slower than usual. As a reminder, Scandinavia is delivers double-digit growth now. So this has been marked by public sector orders that have slowed down or they've got off to a slow start compared with usual. Pipeline is correct. Am I expecting in the second half the same level of growth as previous years? Well, no. we're expecting to be flat or a little bit above flat that's the situation in Scandinavia it's not in bad shape but we're talking about we're not got the same levels of growth as previous years now for attrition it's more or less similar to last year it's quite there's disparities across the different geographies it's higher in some regions and then lower in others this is under control we steer, recruiting, depending on the attrition rate, in accordance with growth in revenue. This is how we manage the headcount that we have, obviously, according to the revenue we have and what we have to produce. Now, for NS&I, obviously, you saw the information in the press release. I can't give you many more details, but I can say this is a renewal of an existing position, and it's a position that – Sorry, I'm mixing up NS&I and CL. So NS&I, yes, we got off to a start on the 1st of April. So a ramp-up which should bring us to revenue around 20 million by quarter for the upcoming quarters. Thank you. Now we've got a question from . Over to you. Good morning. Several points that I'd like to address. One question on airline, the fact that it's stabilizing quarter on quarter in Q1. Do you have visibility for H2 already? Is it reasonable to make the assumption that the stabilization that we've seen over the previous quarters that's going to continue to stabilize into Q3? Next point, could you give us an update on the end of the integration of Ordina against the backdrop of a deteriorating Dutch market? And then the last point, could you share some information discussions that we've had with major customers. What's the upshot from these discussions that you've had with customers recently? Thank you, Laurence. So for aeronautics, I confirm that, yes, we've reached a low point in terms of quarterly volume, so 100 million in euros. We did slightly better, but around 100 million euros. Do I see the activity stabilizing? Yes. Yeah. With the visibility that we have, the discussions that we've had with Airbus, we've got to be quite cautious because obviously the commercial backdrop is impacted by the tariffs. I don't think there's a recovery in activity, but in any case, I don't think it will deteriorate further below the levels that we've announced. So we've got this level of stability here. Then for the integration of companies acquired in 2023, starting with CS, it's going well. It's going very well. We are generating growth. Margins are improving. We won't be far off the 10% targeted. We will be aligned with what we've already announced. And then, obviously, commercial synergies with the rest of the group are looking good. They're positive. And they're strengthening our position in defense, security, and space. For Ordina, yes. The market's tougher. I do confirm this, especially in the Netherlands. It's a market which has slowed down at the start of the year. So this leads us to accelerate decisions in terms of optimization and rationalization. So now for discussions with our customers, we do feel that we've kind of shifted to this wait-and-see climate here. We've got the political context and then the economic outlook, which doesn't lead us to have much confidence in short-term outlook. So customers are cautious when it comes to their investment, their hiring, and we're seeing this across the board. It's impacting the private sector, the public sector for different reasons. So the overall context is caution. Caution is the watchword. Thank you very much. Thank you. Next question from Derek Macon, Bernstein. Over to you. Good morning. Two questions, first of which on momentum in the defence and security sector in Q1. Could you just give us a reminder of the momentum here and what you see happening in the next quarters and then the underlying impact that this might have, the different contracts that we've seen for the Rafale jets, is this going to have an impact on your business activity? And then the next question is on the UK, if we restate for SSCL and then NSCI, we shouldn't be far off something that's slightly positive. What's the outlook for the coming quarter? So if we take out the negative impact of SSCL and NSCI, you know if we take out the impact of the basis for comparison what's your basic outlook for the UK and then my third question so we've seen a sequential improvement in growth for aeronautics UK, France can we just have a bit more information by country what you're expecting So, momentum in the defense and security sector. So, these sectors have showed good resilience along with financial services as well. So, defense and security more than also. In terms of the outlook, this is a sector that's got very long cycles. So, it's a sector where we've got a significant commercial pipeline. But the time between – obviously, we've got a significant pipeline. The time it takes to produce revenue is quite a long time. So we've got momentum here for the next two, three years, good momentum here. Is it going to completely change the overall situation in the upcoming quarters? No, we'll be flat, slightly over flat, maybe slightly better. But in any case, we should see momentum for next year and the coming years. Now for – and then for the Rafale jets, obviously, this is going to generate revenue. But later on, 2026, 2027, obviously, it's good for us when these Rafale jets are ordered. And then for the UK now, I'd already mentioned this, and I'm confirming what I said in February – In the UK, we're going to have a contraction. Obviously, this will ease off in the second quarter, but there will be a contraction. And then we're expecting a return to positive in the second half, probably over the last quarter. And then distribution of growth, distribution between France, UK in this specific sector. We don't give this information. We'll give you the information once it's done. Can I just add a question on public sector in France? We'd spoken about a catch-up over the rest of the year given the slow start and orders that were coming in slowly when the budget hadn't been finalised yet. Is this scenario something that we can consider still or things that Are we going to make up for delays in the start of the year? In France, things are uncertain. Obviously, other countries, slightly different scenario here. But if we focus on France, could we think about this catch-up? Is this scenario possible? Yeah, the catch-up. I didn't think in February we were – I wasn't expecting growth to all of a sudden explode exponentially, but – There was a wait-and-see climate. We had the French budget, which hadn't yet been voted. We signed operations. We're still waiting for orders, as I speak to you now. So, obviously, this is going to have a positive contribution, but there's not going to be a massive catch-up. Thank you. Thank you very much for your question. Now, we've Got a question. Question from from Bank of America.

Hey, good morning. This is from Bank of America. A couple of questions from my side. Firstly, Q1 itself, as you said, was slightly better than your own outlook range. So could you just maybe touch on what drove that? Second, can you maybe just add some color on Germany and Berlux, those two markets were weak. How much of that was just, you know, broader market weakness versus maybe some specific issues that you're seeing? And then finally, if you could just also add some color on Spain and Italy, you're saying the continue to outperform. So what's driving that as well? Thank you.

So there's a translation, so I'll answer your question in French. Q1, yes, was slightly better than planned. Obviously, where's the improvement coming from? That was your question. Mainly in the UK and then a little bit with Airbus. Then for the second question on the market in Benelux, I would say that for Belgium... We've got a pipeline that's filled up. We've signed some good deals in the last month, and we've still got things in the pipeline to be signed in the coming months. So this is driven by Belgium locally, public sector, local public sector, but then also deals with the European Union and NATO. In terms of the Netherlands, the market is more marked. We've seen financial services. This sector here is obviously focusing on cost control, controlling its investments, so contraction here. But we are withholding well. But the pipeline here, there's not as much in the pipeline in the Netherlands. This applies to large operations, but also discretionary spending as well. Can you just repeat your last question? We didn't understand.

Yes. The last question was on Spain and Italy. You said those were up 5% to 8%. So if you could just give any color on the performance in those markets and what's driving that.

So a question on Spain. Spain has got off to a good start, good start of the year, between 5% and 8% growth here. The vision that we have today is that we should be capable of upholding this level of growth for the full year. That's the vision that we have at the moment. And same comment on Italy as well.

Understood. Thank you. Maybe just one quick follow-up. Have you seen any update you can give on the generative AI strategy, anything you're seeing from clients in terms of willingness to implement new physics there, any impact on, let's say, pricing, et cetera?

We are. So AI, yes, obviously, rollout. Rollout use of AI with our customers is accelerating. So we've observed this. Obviously, we're working on this. We're working on consulting and deployment activities and industrial scale for Gen AI. I could add that there's not one transformation program or massification. There isn't one program that's not including Gen AI. So today, this is obviously becoming something that's quite standard.

Understood. Thank you.

Next question from Wolfgang Speck at Bernberg.

Yes, hello. Good morning. Two additional ones from my end. The first one on workforce and utilization. Can you give us some information? We've seen the lowering of workforce. But how is the current structure? Are there still, let's say, material capacity sitting on the bench, or are most consultants and coders fully utilized? That's the first one. And the second one, also on the pipeline, this time to Germany, we've seen a massive budget by the German government for investments, including IT investments. This is something you will be, let's say, trying to to capture, or are there other types of projects that are, let's say, scheduled there, rather out of your scale or not suitable for your organization? Thanks.

So, with regards to workforce, that was the first question. Yes, we've got a headcount that's contracting, subcontracting, we're obviously using subcontracting to be able to manage Bench, I could summarize this. It's one point up when compared with the same time last year. So this is significant, but it's also something that's quite manageable. And we manage this every week. We adapt recruitment. We replace subcontractors with employees. And Bench, was higher in January than it is in March, and I would consider that we should have a standard rate of a bench in H2. Now, for pipeline in Germany, yes, Germany is going to announce significant investment. I haven't seen them yet reflected in the pipeline that we have. We do have a good pipeline, but these major operations, the investment that we're seeing in rearmament. There's been announcements. Obviously, things will be launched, but I haven't seen this materialize in the pipeline yet. Germany is obviously heading into the recession here. We've got customers that are obviously resisting. Then just one point on Germany. We're not exposed to the automotive sector yet. 80% of our revenue is generated in financial services and public sectors.

Thanks a lot.

So, sorry, just for the follow-up, a question on France now. Sorry. I'm really focusing on this, but can we have momentum by sector? What's the momentum for improvement in growth? Obviously, we've seen Airbus, the improvement there. And then next question on staff as well. What about Gen AI automation? Is there a correlation with revenue here? What's the situation here? So for France, the improvement in momentum that we see between Q1 and Q2, public sector and financial services. Public sector because we're going to – we'll be bringing in orders for the deals that we've signed. It's starting, but we haven't had them all yet. And then budgets have been voted. So obviously this will take time. Time to filter through, but there's a wait-and-see climate, but this should make a contribution. And then financial services, we're starting to have a good position with major European banks. Obviously, I've got positive expectations for the second quarter. It's not going to completely shuffle the deck, but this is a sector that will contribute. Aeronautics is stabilizing. And then for Gen AI... Today, we're just at the start of the curve. I can't yet see significant information which could explain why we'll have IT services that are going to be impacted by the rollout of Gen AI. Perhaps this is a question that we can ask ourselves in the next three to five years. There'll be new services, new usages that are going to be developed. So obviously this is This is the story of the industrial revolution. I think we'll be impacted here. But as it stands today in Q1, Q2, I don't see a correlation here. Oh, just one point that I did want to highlight is that we think credibility here. I would say credibility that we can have when it comes to GNAI usage. This is essential to win major operations. Thank you very much. And now, just to remind you, if you want to ask a question, please dial star 1 on your telephone keypad. There are no more questions, so I'll hand the floor to you, Mr. Malaget, to conclude the conference. So I think we'll free up everyone. Thank you for listening, and I wish you a good day. Thank you very much, and goodbye.