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Ladies and gentlemen, welcome to this webcast presentation of Sopra Steria's Q1 Result 2020. I will now hand the floor to Vincent Paris, CEO. Over to you.
Good morning, everybody, and welcome to this webcast to talk about the publication of our revenue for quarter 1 2020. I'd just like to remind you that this is meeting is translated simultaneously as per usual. And before we get started, I hope that you're well, that your loved ones are well, that you're in good health, and that the lockdown isn't too difficult for you. What I'd like to suggest is that we proceed as usual. So we'll start with a presentation of the context, the key decisions that we've taken. Then we will look at the figures for the first quarter, and then we'll look at initial forecast for the rest of the year, which I'll come back to. And then we will have -- our CFO is with us, Étienne du Vignaux, so we will answer any of your questions. So what I'd like to suggest is we look at what's happened, the context that we're in for over a month now. And our key priority which we set for ourselves, number one is health, priority given to health, the health of our employees, our customers and our partners. And a second priority is business continuity. So as such, 2 days before the lockdown was officially announced, we announced homeworking for absolutely all over the country in France, and we've had the same approach in other countries. And it is -- as of the 22nd of February, where all our employees have been working from home so that we could reduce any health risks. And it's going well. We've ramped up our capacities across the board in the group. We've got over 90% of our employees working from home. Now sometimes there are technical reasons, security reasons, which means our employees can't work from home. For example, if you work for the ministry of the army or in various sectors, we can't work from home. But we've got 90% of the group working from home, 80% in India. And obviously, we greatly anticipated this context after a month before the lockdown decision were announced. And obviously, in this context, maintaining a close relationship, communication is important, so with our customers, communicating with our customers, and looking for solutions on a day-to-day basis and obviously with our employees as well. Explaining the situation, obviously, there's a lot of questions. So we have to make sure that we communicate a lot in this context, and that's what we are doing. In terms of adapting to the situation, straightaway, we set up a crisis government as of March. So our team is managing all topics, operational, health, economic, financial, communication, HR. Just to keep things very simple to explain how we operate, what we do over a monthly cycle, we're doing over a weekly cycle. So we review all the different topics with a short-term vision. And so that is something that is already set up. We have a crisis committee every morning at 8:00 at a corporate level, and each country has its own governance as well. As per usual, and more than ever, our local managers have, of course, a great deal of responsibility. We share decisions but situations are specific from one country to another. So they have a great deal of independence to be able to manage things suitably. Obviously, we're also launching a lot of offers to be able to support our customers with the confinement -- with the post-confinement period, so we're very active. And obviously, you've seen that we've been really committed to the Stop Covid initiative, which was put forward by the government to help people after this confinement period to make sure that the virus doesn't come back quickly or at all. So we have this Stop Covid application, and we were at the heart of this initiative. We're working on the applications at the front end, and we've worked with various partners, as you know. Obviously, we've also adapted our costs, OpEx, CapEx, subcontracting. In a crisis period, obviously it's essential not to wait, to make the changes right away. And then we've been using the various government measures in France and the U.K. Obviously, we've been using them responsibly and limit -- to a limited extent, but we're not rolling out these measures en masse, but we are answering the questions we have today. So that is the context. I want to highlight two points which are important when we think about the group's profile. The first is that we are a resilient group. It's very important to highlight this. For about 15 years now, we are focusing on major customers, and that's what's made the difference in today's situation. The group's top 100 customers that we're focusing our efforts on account for 50% of the group's turnover. In France, we have 25 priority customers, so it's over 2/3, and that's important. We have a very pragmatic approach. We're focusing on proximity, which is what makes a difference. We have an effective mix of local and offshore. We willingly have -- this is part of our strategy, but we have a significant share of our customers in the public or power public sector, so 30% of our turnover, and telcos represent 5%; very active market today. So we have this profile, and in each of our geographies it's important because these sectors ensure stability. I'd like to remind you that 40% of our activity is recurring. So BPO, 11%; infrastructure management, 11%; application management, 12%; and then software, 6%. So it's important year-on-year to working on this ratio of recurring revenue. We have a solid balance sheet. On the 31st of December 2019, everything was published. Étienne will be able to answer your questions, if you have any. The net financial debt represents 36% of equity and liquidity is quite comfortable. As of the 24th of April we have financing lines of EUR 1.5 billion and part of a revolving banking credit line with EUR 900 million, not drawn, expiring in July 2023. So our situation is sustainable. We're strong, and we're looking healthy in terms of finance. The next point I want to highlight is our approach, where we're focused on long term. Obviously, we fight every day to optimize short-term situation in the first quarter, but we're not losing sight of what's important for the year, and we're seeing this. The way we manage this crisis, obviously conditions, the way we come out of it, so our position is sustainable. This crisis is going to be a long crisis that is, as soon as we come out of it, obviously, nobody knows when we'll be out of it, we'll get going with the context that we had before. Things will get going even faster, even stronger. It's pushing our business lines, and this is why we'll be able to make a difference. So the way we behave today, conditions, our position in the future, so the way we address our customers' problems, the way we help them optimize costs and our relationship with our partners as well. Obviously, our employees -- this is not the time, we shouldn't be abusing the situation. Today is the time to illustrate the values that we have as a group, and it's part of the company's DNA to push these values. We -- even with confinement, we've seen that we've got good employee motivation and the situation is working well with our subcontractors as well. Obviously, we have subcontractors and -- but we work with them, upholding our values in order to maintain a long-term relationship. And this is important because this is the group's philosophy as we enter this crisis. So this being said, we can look at the figures. You can see, for the first quarter 2020, revenue was up by 4.5%, so EUR 1.14 billion. The changes in scope had a positive effect of EUR 14.3 million, with currency fluctuations negative of EUR 1.5 million, so growth of 3.3%. So a lot of -- we're fully aligned with the trends that we'd announced of plus 3% to 5% economic growth for the first part of the quarter. And then, obviously, from the second half of March, we have a reduction in revenue estimated at EUR 10 million because of the coronavirus, and where we're seeing -- we think we're going to have a more significant impact in the second quarter. Now for France, organic growth was 1.6% with quite big contrasts. I've spoken about sectors that are boosting us. Obviously, there are some that are boosting us in France, so we resisted well in defense, social, public sector and telecommunications. Obviously, things have been more difficult in the aerospace sector. Airbus is our #1 customer. We did EUR 330 million with them last year, and they announced reduction in their production by 1/3. So this isn't good news for us. We are optimizing. We're working on this every day. But the -- obviously, that does have an impact on our business and then obviously transport and industry. Obviously, nonfood retail is difficult as well. So that's the situation. Obviously, we're very active. It's not a catastrophe, but we can't deny that there's an impact. So for quarter 2, figures will be down quite significantly compared with March. In the U.K., we have organic growth of 1.9%, with contrasting situations. The joint ventures are holding up well with average growth of 8.5%. Two things that should be highlighted outside of these joint ventures. First of all, the application delivering visas for the British government has been suspended. Obviously, we're negotiating with the government. We don't know when this application will be relaunched, so this does have an impact. That's sensitive information. And then for the private sector, we're a smaller player. We've got customers like easyJet, who have been heavily hit by the crisis, and this has impacted -- or this will impact our revenue for the second quarter. In terms of the rest of Europe, we've got organic growth of 8.5%. This has been driven by two factors. Scandinavia, great performance with 11.7% organic growth in the first quarter. And then the positive impact of Sparda-Bank. So we have a joint venture, Sopra Financial Technology. So revenue is consolidated since halfway through last year, and we've had a great deal of activity in the subsidiary. So aside from these 2 areas, the rest of the countries were stable over the period. Now if we move on to our solutions, the Sopra Banking Software, we are following our operational plan. We have product plans that we're following. We have the new version of Cassiopae. So 4.7, which was released on the 31st of March, as planned, and this will be used for all our long-standing customers. We've been working on this with them. We will carry on working on the subsequent versions, and our objective is to relaunch sales as of the start of 2021. For the rest, we're following our operational plan. We've made progress with the Sparda-Bank program, which is key for developing our core banking in Europe. So for -- investment that will carry on, we're delivering as planned. Obviously, given the context that we have today, decisions are slower. Things are slowing things down, license decisions are slower, but this doesn't call into question our investment. Perhaps the market is going to be a lot more active in terms of licenses towards the end of the year and next year. And then we have other solutions where we had organic growth of 0.6%, driven by real estate activity, which grew by 2%, and the human resources activity was stable, obviously despite the impact of the crisis that you're all aware of, so that's our business. Now if we look at our outlook, as you've seen, we've made forecasts for the first semester with a reduction in turnover of between 2% and 6%. Obviously, we can see activity for April, May and June, but you should be aware that in all the group's geographies, even if we're very well positioned, given the crisis context, given the economic context, our customers can take drastic decision at any time. The situation as it stands today is not a catastrophe but we are well aware that it could be worse. And what I want to say is that even in the month of June, there are things that are uncertain. It's not reasonable to make forecasts for the second semester. It could be very positive. Obviously, as I've been saying, we've been very active, but there are big risks, risks that our customers face, risks in our environment, which mean it's not reasonable as it stands today to announce a forecast that's either too optimistic or too pessimistic. So we're focused on the priorities that I've mentioned. We're obviously managing the company very closely, but we can't make any commitments further into the future. So that's what I wanted to share in terms of the situation. Now I'd like to hand over to Olivier Psaume, who will be organizing questions, if you sent any in. Obviously, we'll be answering your questions with Étienne.
Good morning, everybody. At this stage, we haven't received any questions. [Operator Instructions] So we've had our first question from Emmanuel Parot. What is the number of people who are partially unemployed?
So partial unemployment, so we haven't made all the decisions. Obviously, we're talking about provisional figures. Partial unemployment is something that we'll see a couple of months later. It's a low figure. As it stands today, we don't have the situation -- we don't have the full figures. This is not at all our first priority. Obviously, we prioritize assigning employees to projects that we have or to research and development or internal transformation. We're pushing corporate responsibility activity, which is obviously essential during this time. And we are also -- we are using partial unemployment measures, but this is a very low number, and we're only using these measures responsibly.
Next question from Derric Marcon. Can you give us the calculation of the recurring revenue and can you give us the breakdown?
I'm just going -- so 11% per BPO BPS. 11% for infrastructure management. 12% for application management. And 6% for software. This is the share of recurring revenue in our different divisions.
Next question, Laurent Daure. What is organic growth for Sparda?
Étienne du Vignaux. 40% in the first semester.
Next question from [ Meny Davis ]. What is the impact of the reduction in business on margin?
So drop in activity on margin, if I may say, this -- everything depends on the reductions that we have at the account level. So we are impacting -- we're, obviously, trying to forecast this impact. We're trying to anticipate things, but we are optimizing things. We're managing things. That's how we're managing activity. Obviously, if there is significant negative growth, and we're going to have to try and reduce costs and the impact on margin will obviously be significant, whatever we do, but it's too soon to give you any detailed information on this. Obviously, if there's a drop in turnover, then we have -- there's a drop in cost. But at the same time, we have got an offensive stance, and we're adapting our position day to day, but it's too soon to give full details on the impact. So even if we lower our costs, a drop in turnover will impact our results.
Next question from [indiscernible]. What is the impact of the reduction in Airbus activity at group level?
If I may say, 1/3 of production -- a reduction in production of 1/3 means we've seen a production drop of about 30%. So over time -- well, we're signing deals every day. But obviously, you've seen in the press, they're optimizing the situation to adapt to their context, and it's not easy. So this is something that we'll communicate on gradually. But today, I would say, 25% depends on geography, but this is obviously a forecast. We've made observations. Today, we've seen what's happened, and we're trying to anticipate what's going to happen in the upcoming quarters.
Next question from Gregory Ramirez. On cost management, with regards to recruitment, subcontracting or other costs, how are we managing costs?
I think this was explained earlier on. We're obviously taking decisions rapidly. Anything that we don't need to do, we've stopped. Obviously, there's no travel. Purchasing is obviously being reviewed, and we're seeing a lot less than usual subcontracting. Obviously, we're not going to stop working with subcontractors overnight. We are reducing subcontracting. They will take a month or so to have an impact. But we have to maintain our production capacity because we are signing deals, so we have to be ready. So we're adapting our costs, but we're managing things very pragmatically on an operational level, on the ground, given the -- taking into account the local context that we have from one country to another.
Next question from [indiscernible]. So if we take the indications that we've given for the first quarter and then the second quarter, between minus 7, minus 15, can you indicate the areas where we're going to see the most significant drop?
There's a big difference between the best-case and worst-case scenarios, so we can't give you the sort of detail today. We can't give you detailed figures. But yes, the calculation was right, between minus 7 and minus 15.
Next question from Derric Marcon. Cassiopae roll out of Version 4.7, is this going to generate more service revenue in 2020?
No. Because this was integrated into our plan. We had planned to resolve some of the difficulties that we had. So we wanted to wait for this version, which is more stable, more industrial, before we relaunch our customer projects. So this was obviously integrated into our forecast, so there's no impact.
Next question from Nicolas David on 4.7. Is there a risk that you won't be able to implement this with your customers and that there will be additional overruns?
Obviously, there's a risk like there is with all our operations. It's clear that given the context, we want to resolve the situation we have to then get going with a more offensive approach. Obviously, every month, we're working on this. There is some overrun, but all of this is integrated into the forecast that we have. In 2019, 2020, what our priority was our product roadmap and resolving the customer difficulties that we had, so we could get going with a more aggressive approach in 2021. That's the plan that we're following. And the crisis hasn't had an impact on this. We're following the plan that we have.
Next question from [indiscernible]. Could you give us an indication, the size of the impact that you've put into your first half expectations from the U.K. visa immigration contract being suspended?
So obviously, this is conditioned by the fact that people need to travel to the centers where visas are prepared. Obviously, this isn't possible during the lockdown period, so we're expecting a negative impact of EUR 10 million on Q2. And we're forecasting a progressive return to business in Q3 and then obviously Q4.
Next question from Laurent Daure. Concerning customer behavior, have you seen requests for price reductions or payment delays extended?
Not really. But obviously, we're looking at this very closely. Customer behavior is very important. I'm very happy to say that we've got constructive customers, they're trying to help us. As far as I'm aware, I haven't had any request or any -- it's only very specific areas. Yes. It's obviously focused on airline companies and this is minimal at group level.
Another question from Laurent Daure. Could we have an update on Sopra Banking Software's overruns?
So we still have the same type of overruns that we had last year. I haven't got the exact figures in mind, but we're following the operational plan that we set. There are no major overruns. Nothing really has changed when compared with the context that we spoke about 3 months ago.
Next question from [Nicolas David]. On the U.K., could you detail the impact of the contract with the Ministry of Defense, so the ramp up there?
So this contract is worth EUR 300 million over 7 years, so there's a ramp up in 2020, low margin in the first 3 years in Q1. There was a marginal contribution, so this is really the launch phase. And for the rest of the year, we're expecting a negative contribution in terms of margin between EUR 5 million and EUR 10 million.
Next question on Scandinavia from [ Nicolas David ]. On Scandinavia, could you describe the situation which has enabled you to upheld such strong growth in the first quarter and what trends are you expecting for the second quarter?
So there's one thing that we should highlight. Basically, we're very much present in the public sector. 80% here. 80% of our activity in the Nordic countries is public sector activity, and we've won deals in each of the countries. Activity has been upheld. So we've been successful, and we will continue to be successful, so we should have good growth at group level. But what's important is our public sector positioning. That's what you should take away.
Next question on [indiscernible]. Would it be possible to have the breakdown of changes in scope, so EUR 14.3 million?
As indicated, we divested the U.K. recruitment activities, so minus EUR 38 million. From the first of August, we've integrated the Sparda joint ventures. So that's plus EUR 30 million, and we've integrated SAB in to software banking software halfway through year, so EUR 13 million. And then some HR activity as well, which brings us to EUR 14.3 million.
A question from [indiscernible] [ David ] now. You mentioned Airbus and easyJet, your customers who've been impacted, are there any others? And what is the proportion of revenue?
Above all, it's Airbus, obviously, easyJet as well has been impacted. But other customers, there are no major events that need to be highlighted, which are seeing a little bit of friction, a cautious approach because everyone is obviously subject to the crisis. So we're being cautious in terms of our projects; there are some that may be stopped. But no other customers are experiencing the same situation as Airbus. That's you need to bear in mind. The others are resisting. Obviously, there's a little bit of friction. Some projects are starting, but there are no major impacts like Airbus. Impact is quite limited, and it's consistent from one country to another. Obviously, there's the risk and the opportunities that I described earlier. Obviously, there's a psychological impact as well. Macroeconomics has an impact as well. It's difficult to make forecast for the next 3 to 6 months, but it does have an impact.
Next question from [ Nicolas David ]. In your forecast for the activity in the second quarter, what's the share linked to the confinement and what's the share linked to drop in demand?
Obviously, confinement, where we're present with the customer. When the customer project is going well, there is no impact. It's just a different way of producing, a different way of working over the long term, which is more difficult. But I think we're capable of reinventing ourselves, staying effective. The major issue that we have is not a business issue, it's an economic issue. It's customers who are lowering the number of some contractors. Obviously, it's just a different way of working. Some customers don't want to -- working remotely, but we're obviously paying a great deal of attention to the health issues, but all of this can be managed. The big question is our customers' financials, how are they doing?
Another question from Laurent Daure. What is the expected contribution from Sparda in 2020? And can we have an update on the pension funds?
So Sparda, in terms of turnover for 2020, we're expecting EUR 200 million. So the U.K. pension fund, no specific information on this topic. Obviously, the assets are impacted by market changes. So this represents 20% of assets as of the 31st of December 2019, and then obviously we have other liabilities. So depending on the changes in rates, there could be favorable impacts, but we'll be communicating on this at a later date.
Another question from [ Patrice Revier ]. What is the impact of the crisis on the Saudi fund's activity?
So obviously, you should ask them this question. They'll be publishing their results themselves. Obviously, the general market context has an impact. Obviously, we're communicating with and we're managing the current impact. We haven't seen any major crisis. So once this crisis is behind us, then it's still going to be the same company. There's no -- nothing that we really need to highlight. It's a market that just seems to be resisting, holding up well.
Another question from [ Jeremy Quick ]. Can you give us the weighting of the different sectors in the group's turnover?
So #1 is banking, 24% of turnover in 2019. 5% in insurance. The public sector, pure public sector, represents 23% of turnover. Aerospace, defense and homeland security is 17% of turnover, and then Airbus is included in this figure. And then energy and utilities, 7%, telco and media is 5%, and then between 4% and 5% for transport. And then the rest, others, is 11%.
Another question from [ Patrice Revier ], do you see any new opportunities or new requirements that might emerge?
Yes. Well, obviously, I said that we're being very active in terms of consultancy for all of our customers. Obviously, we're doing -- we're working with an agile approach. We're looking at how we can help them to work with an agile approach remotely. We're looking at how we can optimize production. So there's lots of different ways, ways of working, which are going to change. So companies are going to have to reinvent themselves in the coming period. So this is obviously very favorable for transformations and there's lots of applications that might emerge proactively. I spoke about the Stop Covid application that we've got initiated in the retail sector, so that we can optimize queuing digitally, for example. This has been -- this application we're making available to our customers for free during the crisis, but there are a lot of proactive examples that we could give you as the new office that we [indiscernible]. We're just at the start of this. This is start to something new for us. We're going to see a long-term transformation where customers need advice, they need proactive support, they need help managing their activity. So from this point of view, I'm not worried about the possibilities for innovation, cross-selling or new office in the future. Not at all worried. And so obviously as I mentioned previously, we are signing new deals every day in all the group's different sectors. So even if we're experiencing a crisis, underlying trends are obviously still there, and we're seeing even more than usual.
Next question from [indiscernible]. Are you expecting any layoffs and low or no promotions this year?
Obviously, our employees are progressing. So on the contrary, we're going to be promoting people. We're going to be training people. That's absolutely what we're doing. Obviously, in terms of salary, we might be a bit more cautious throughout the year. In terms of layoffs, it's too soon. We've not thought about that yet. It's too soon to give you any details on this question. Obviously, it depends on development in the current situation.
Another question from Antonin Baudry. Could we expect any extension in payment terms?
So we're positioned with major customers, major accounts. We're being very attentive on this matter. Obviously, we have to work with our own suppliers ourselves. It's very important to make sure things run smoothly for our future relations. In terms of DSO, we've had a EUR 10 million impact on the cash flow. We've obviously made a lot of progress over the last couple of years to hit 55 days DSO last year. We obviously are focusing on this, managing cash very closely on a day-to-day basis. And as it stands, we don't have any issues in terms of the cash collection pace as it stands today. Obviously, some areas have been more fragile than others. I'm thinking about MEA in Africa, where we're present, where there may be potential measures that we have to take in these regions. Obviously, when it comes to acting currently from these regions as well.
Another question from Emmanuel Parot. On subcontracting, what is the weighting of subcontractors that could be replaced by Spora Steria headcount?
So weighting for subcontracting varies from activity and country to country. It's about 10% to 15% in each of our geographies. It's essential to have this minimum level of subcontractors. So that this gives us a flexibility and enables us to be reactive. We're going to replace subcontractors with Sopra Steria employees, of course. This is something that is already underway, but this is something that we work on over time. We don't want to drastically stop working with any subcontractors. We don't want to put them in a difficult position. But yes, we can lower this figure. We can't completely stop working with contractors because there are some that do have major expertise. And then I'd like to remind you, there's obviously going to be the period after this crisis. So we don't want a situation where people don't want to work with us in the future, but we have a pragmatic, smart approach to subcontractors. Obviously, there'll be a significant reduction in subcontractors, and we will adapt to business as we make these decisions progressively.
Question from Derric Marcon. Can you see any factors which you think that the EBIT margin in 2020 will be lower than 2018, 2019?
So given the current crisis -- sorry, we're talking about the 2008, 2009 crisis. The current crisis is very different. Obviously, the duration and the way the economy is going to come out of this crisis is very different, and that's why we haven't provided a guidance for this year. That's all we can say at this time.
Questions from Laurent Daure. For your revenue guidance, your level of save -- is your level of savings sufficient to be able to maintain margin in the first half of the year?
I'm going to give you the same answer. We're not going to be issuing guidance. We've given quite a broad bracket for turnover. Obviously, we can't give you any indication of the level of margin that we're expecting in the first half of the year.
Question from Antonin Baudry. How is the current -- how could the current context flow down Sopra Steria's value ramp-up strategy and recruitment of business consultants?
I don't know whether this is a mid-term or short-term question. Obviously, it's not that easy to recruit today. With all the recruitment that we had anticipated or that was already planned we're carrying on with that. But recruitment is kind of slowed down or nearly stopped today. But everything that we can do in terms of value ramp up, repositioning our profile, that's something that we're going to do, crisis or no crisis. We obviously want to differentiate ourselves and be proactive with our customers.
Question from Nicolas David. Given the current context, what is -- what customer behavior are you observing specifically in the banking sector, whether it be for services or software?
So I've spoken about sectors that are holding up well, that are very active. I've spoken about other sectors suffering. Banking is kind of in between the two, so there's nothing really to signal here. It's not the most active sector, but it's not the sector that's struggling the most. The situation isn't as tense as what we're seeing in the aerospace sector.
Another question from Derric Marcon. What is your usage rate? Are you going to drop this?
So obviously, we've seen a few negative points. Obviously, this depends on geographies. What you need to take away is 1% to 2% for the time being. There are obviously risks, that's all we need to highlight.
We're going to take a couple more questions before we close the call now. Another question from Derric Marcon, which we've kind of already answered. But when do you think you're going to have more visibility in terms of what your customers are going to be doing in terms of IT spending?
So there's nothing that's really -- that we can really use to say, okay, at this point in time, we'll have a clearer vision. Obviously, anything can happen. Every week, we're managing the short-term situation, and we're also anticipating transformations that will happen after they lock down. Once again, it's very much too soon to tell you what's going to happen in the second half of the year.
One last question now from Derric Marcon. How can the cost savings, which have been imposed given the situation, how can they have a positive impact on the results for 2020?
So I said, imposing vacation. We've chosen not to impose holiday. We've been quite flexible. We haven't made any employees take holiday. That's the positioning that we've taken. Obviously, we're going to be pragmatic and effective. We'll optimize holidays. We'll try and encourage people to take holidays during holiday period in the summer, but we haven't imposed any holidays, and we can't quantify this impact.
So at this stage, we don't have any other questions. Therefore, I hand the floor to you.
Thank you very much. Thank you very much for listening to us. Thank you for your questions. I wish you well in this strange period, and we'll see you at the next group event. So have a great day, everybody, and see you soon.
Ladies and gentleman, the conference has now finished. Thank you very much for taking part. You can now disconnect from the call. [Statements in English on this transcript were spoken by an interpreter present on the live call.]