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Ladies and gentlemen, welcome to Sopra Steria's phone teleconference to announce the quarter 3 results. I will now hand the floor to Vincent Paris, the CEO. Over to you.
Good morning, ladies and gentlemen, and welcome to this quarter 3 results announcement for 2021. I would like to suggest that we proceed quite simply. Firstly, we will talk about the overall situation and the environment. Then we will go over the figures published for all of our reporting units for quarter 3 2021. And then with Étienne du Vignaux, our CFO, we will answer all of your questions. So if we start with the overall situation in Q3. No surprises, very dynamic market, a lot of deals, a lot of projects. It confirms a pre-COVID crisis level of business activity. All verticals, all our customers are at high levels with the same drivers, the transition to the cloud, automation of digitized processes and then, obviously, cybersecurity as well. So all of these cutting-edge matters, which we've been pushing now for several years, are continuing to drive the market. Organic growth in revenue was 8.9% with a significant increase in France, 11.4% organic growth compared with 7.5% in Q2. Strong growth sustained in the U.K. and sustained growth in other European countries, so a very active market, obviously. The war on talent is obviously a criteria which we're monitoring very closely. So just a few comments on the pace of recruitment. We said we wanted to accelerate. We have done -- we've got 3,710 new employees that have joined the group in the quarter, so almost 8,000 since the start of the year. We have an attrition rate, which is stable, under control, even if it's slightly higher since the start of the year, but it stabilized at 15%. And as of the 30th of September, our headcount was up 1.5% compared with the 30th of June this year. And in particular, in India, we've seen more growth, so a growth of 10.2% in our workforce for this period. So this is a general piece of information I can give you. Now we'll look at our reporting units. So France, firstly, as I was saying, very active quarter, 11.4% organic growth. This obviously reflects an acceleration in all business lines, so consulting plus 11% compared with 6% in Q2; systems integration plus 10% compared with plus 8% in Q2; infrastructure management with organic growth of plus 5% when we're almost stable in Q2; and then product life cycle management, plus 44% when we're at plus 26% in Q2. So these good figures obviously reflect a very favorable comparison basis last year. The vertical markets were the most dynamic in France where aerospace, obviously, with this recovery, defense, transport and then telco. And then at group level and then in France as well, recruitment was reinforced, 854 new employees in Q3, where we had an average rate of 690 in the first part of the year. And then if we can look forward to the rest of the year, we're expecting sites acceleration in growth in the fourth quarter compared with Q3. For the U.K., I'd like to remind you that the first half of the year was very active, plus 20% growth. We've sustained this growth, 15.4% in Q3. So we've seen the same drivers, our joint ventures, SSCL with a lot of volume, a lot of recruitment in national security, which is obviously a priority. This has obviously been a driver, so volumes on this platform. Then we've also seen delivery of the U.K. Visa service has obviously been sustained in the Q3. And then the public sector was very active as well with growth. And then no surprise, we saw a contraction in the private sector at the same pace as the first half of the year, but we are continuing to improve our margin. We have the same challenges in terms of strategy. In 2, 3 years' time, we want to build a stronger position based on our platform around financial services with synergies with Sopra Banking Software. So that is what we are trying to build. This is underway, but we do need time to do so. So a very active quarter in Q4. Obviously, it's important to bear this in mind. We expect it to be stable because last year, Q4 was very active. The various factors that I've already mentioned were very promising last year. So we're not expecting the same rate of growth in Q4 in the U.K. Now for Other Europe, organic growth of 6%. We have 2 factors in this division. We have all the European countries outside of France and the U.K. We saw that there was sustained growth of plus 9.6%, double-digit growth in the Benelux, Scandinavia and Italy. But we saw -- broadly speaking, it was active -- an active reporting unit, and we should retain that SFT, software financial technology, the joint venture that we have with the 7 Sparda Banks has been following the operational plan. There was a contraction, EUR 49.3 million last year compared with EUR 43.3 million, so a negative growth of 12%. But overall, we had a 6% growth in this region. Now for software. Sopra Banking Software, negative growth of 2%. This is aligned with forecasts. As I said, the -- our growth will be very much linked to our capacity to sign licensed deals in the last quarter. We had growth in the second quarter -- third quarter with contraction, and this is fully linked to this phenomenon. The services turnover represents 40% of total revenues, and that was stable, and the decisions that we have taken are being upheld. Product plans are upheld, and the R&D transformation plan, as announced, is being rolled out and should start to pay off this year. So we are seeing that we're very solid, and we have increasing confidence in our products, and we have our progressive improvement plan which we are following. Now if we continue with Other Solutions. 2/3 of this reporting unit specialized in our HR activity and 1/3 for property management, so 6% organic growth. And halfway through the year, I said that we're carrying on our heavy investments to carry on digitalizing products, so that we can fuel growth and to ensure that our solutions are sustainable in the long term and that they're digital, and this will enable us to be offensive. So that's all the different reporting units. Just a few details on external growth because we've had 2 targeted acquisitions, one in France, one in Scandinavia. So these acquisitions in France regards the cybersecurity domain, so a cybersecurity firm with a turnover of -- forecast turnover of EUR 33 million. So this is an important factor in our market. It will enable us to bolster our position in France where we're top 3. It will consolidate our leadership in a market and in a domain, which is very important for all of our customers. So I think it was right to reinforce ourselves in this domain. And then we have Norway EGGS Design, EUR 14 million in 2021, approximately 115 consultants working in consultancy and design for digital services. So this reinforces our position in Norway. So these 2 acquisitions, even if they're very targeted, they're aligned with our strategies. They have added value, so that we can accelerate our development in digital transformation. And these acquisitions should be finalized at the end of the year or the start of next year. Now outlook for the end of 2021. Q4, bearing in mind everything I've just said, we're expecting growth between 8% to 9%. And then we're confirming the objectives that we announced to the market on the 29th of July 2021. So organic growth in turnover above or equal to 6%, operational margin on business activity between 7.7% and 8% and then free cash flow between EUR 150 million and EUR 200 million. And I'd like to remind you that the publication of our annual results for 2021 will be on Thursday, the 24th of February, 2022. That's what I'd like to share with you about Q3. And now with Étienne, we can answer all of your questions.
[Operator Instructions] First question from Nicolas David from ODDO.
Thank you very much for these figures. We're seeing a confirmed recovery in business. I would like to understand the trends for the business line compared with other European competitors. So we're seeing pressure -- increased pressure on application management services or application for testing. What is your opinion on the trends in this area? And then we're seeing a strong growth in digitalization services. Have you seen an acceleration in prices, for example, which might have an impact? And then obviously, with these 2 different business lines, how can you see the changes? What are the changes that you could see at group level? That's the first question. And then the second question is the guidance with regards to margin. So the bottom of this range would indicate that it's almost stable with regards to last year and 1 point lower than 2019. But obviously, we've seen good volumes, volumes that are equivalent with 2019. So why do we need to take into account this level of margin or -- which is under 2019? Or do you think you're going to be closer to 2019 levels? Or is this a cautious approach? And then the last question. We see with SBS, obviously, you've got the comparison basis that you have with last year. What is the volume of activity of licenses last year? Was it very active? Or we just want to have this comparison basis in mind.
So with regard to the first question on level of activity, yes, in all of our business lines, we've seen a dual effect here where legacy services recurring or traditional services have -- we've seen pressure on prices. So we've obviously had to -- our customers need a bit of room for maneuver here, and at the same time, innovation, transformation, digital transformation. Obviously, this is pushing. So we're seeing these dual factors here impacting all our business lines, so application services but also infrastructure. In infrastructure, we saw growth above 5%, not necessarily for legacy activity here because we had negative growth here. But obviously, we're seeing strong growth in this domain. So application services, obviously, we don't separate them here because we want to push based on our positioning. We want to transform legacy. Obviously, if you're not present in the legacy, it's a lot difficult -- more difficult to transform. So we're pushing this transformation. This is obviously what's driving growth, and we're not seeing anything new here. But in terms of prices now, as things are progressively increasing, obviously, we'd like things to increase quicker. But in the latest months and hopefully in 2022, we hopefully will see this trend continue. Broadly speaking, we're not worried about the fact that we should be able to push our sales prices and increase in the coming quarters with the market positions that we have. Obviously, we're looking -- at the start of the year, we're seeing a slight increase, but there isn't a major increase here. With regards to margins now, we'll see this at the end of the year, but broadly speaking, we're working on different areas of optimization. We maintained our level of structure with a lower turnover previously. Obviously, we knew that the recovery will be strong and brutal, so we wanted to maintain all of our teams as they were because we were looking towards the future. So we're back to the same level of revenue, and we should come back to margin levels that we had before the crisis. It will be progressive, but I can confirm this trend. We're seeing an improvement here, but it's too soon to give you a vision. And that's why we've upheld the guidance we have for Q4, but I'm not worried about our capacity to progressively improve our performance in the coming quarters. We're clearly working on this. And then for licenses, annually, what we need to take away for SBS is that we signed about above EUR 60 million of licenses last year, and we're expecting to sign about EUR 50 million this year. I had announced this previously. So it's lower figures. Other indicators are heading in the right direction, but this indicator is down slightly. A little bit of uncertainty around Q4, but we're not calling into question these balances here. We don't have a risk area for Q4 for the licenses. Obviously, there's a bit of uncertainty, but the situation is under control. There we go.
Now the next question is from Laurent Daure, Kepler Cheuvreux.
I have a question. I just want to come back to the private sector and the comments that were made with regards to the U.K. We've seen an improvement between Q1 and Q2. Are you expecting a return to growth? Can we just -- I feel like what you're saying has changed. I know this is a small area. But this seems to be a buoyant market, and it seems there are some difficulties here. Now for banking, apart from licenses that we're expecting, and then obviously, with SaaS, we're expecting an improvement, can we have guidance with regards to overall 2021, see if there's a compensation for licenses here? And then the last point is regards M&A. Can we have an idea of the profitability that we should expect in 12 months for the 2 acquisitions?
So first question, private sector in the U.K. This is true. We -- with the vision that we had at the end of Q2, we did see an improvement between Q1 and Q2. We were hoping for an improvement or to be stable. We had 2 projects stopped, not because of our fault. These were projects that weren't launched or business declined here. But now for several quarters, we haven't been able to compensate for this. We're a small player. When a customer reduces their subcontracting, it's obviously difficult to compensate for this. It's not a drama. Obviously, it wasn't a good surprise, but not a drama because the margin quarter-on-quarter are improving. So things are better, and we're seeing improvements. So we're working on this. And at the same time, to avoid being in this situation in the long term, we are investing in our positions, platform-based positions. So this is genuine expertise that we have in the U.K. now, so in the financial sector with Sopra Banking Software, so that we can have a more recurring solid position and not be subject to this type of factor. With regards to licenses and SaaS, SaaS is growing. The precise figure, I'm going to look to Étienne. We're talking about EUR 50 million for the year for SaaS. This is growing in all our different product lines. That's what I can say in general terms. Obviously, there are more details. Look at the details of each quarter, but that's the overall figure that I have in mind. The -- yes, and then the margin rate for the acquisitions. It is above the group rate. So this will drive the group's margins up. We're talking about specialized domains here. So obviously, this is an important factor to take into account. And then obviously, the transactions haven't been fully announced yet. What are we talking about multiples of 1 or 2 or -- no, we're not going to give any more information than that at this stage. I'd just like to obviously take the opportunity here. We mentioned the acquisition price. Obviously, we're not going to talk about the Sopra Steria merger here. But I think we've had 28 acquisitions, EUR 1 billion in turnover with a value of EUR 800 million, so EUR 0.8 billion. Obviously, depending on the different business lines, there are variations, but it's important to have these multiples in mind.
Next question from Emmanuel Parot from Gilbert Dupont.
So my questions have already been asked, so I'd just like a little bit few more details on SFT. Can you just give us a reminder of what you're expecting with regards to the rest of the activity and stability here?
So with this joint venture, we're progressively commissioning components here. First components have gone live, and others will do so before the end of the year. So this is a 13-year contract up until 2032. So there's lots of optimization. There's various different priorities. We will -- before the end of this year or at the start of next year, we'll review our major objectives with all of the banks here, both in terms of production, what needs to go live and then, obviously, our business plan as well, how we're going to attack the market here just to refine our priorities for the future. So obviously, we'll be pushing digital services, and then other matters will be deferred. I haven't got lots of details here with regards to the upcoming milestones because we are currently reviewing priorities, given the acceleration in the market and the different market factors that are impacting us. So obviously, we followed the plan. We followed everything that was planned. There was a slight delay in the first part, but as I said, things are going live, and we will redefine the next phase progressively being as agile as possible, obviously, because we're talking about the bank's information system here. This is a long-term, heavy program. We've never hidden this fact. We're talking about something that's highly structuring on the market here.
Okay. Perhaps another question on -- obviously, you've spoken about sales prices and resources. You've accelerated recruitment. Could you talk about changes in salaries for new hires and then, perhaps, demand that is upcoming from employees to make sure that you're confident in terms of your margin for future years?
Okay. So salaries, no surprises here. We adapted the market constantly. We've got a very simple action plans to be able to uphold our pyramid. I don't know whether we'll uphold our average salary. It's too soon to say this. Obviously, we've made recruitments, 80% of which were junior profiles. This is obviously the way to uphold our HR pyramid and keep our average salary under control. So we're monitoring this very closely. But given the market which is pushing hard in all geographies, it's not impossible that average salary does go up a little bit, but I'm not worried about this at all with regards to upholding margins because there's no reason for sales prices not to go up at the same rate. I mentioned this earlier. We are, obviously, looking at our operations for now, and in the future, we're looking at increasing our sales prices. So this is obviously a crucial factor when addressing this matter. And we are working on this, but this is nothing new. We're used to working on this, but it's a factor that's accentuated by the market quite simply. Thank you.
Next question from Derric Marcon from Societe Generale.
I have 3 questions, mainly focusing on SBS. Can you just give us a comment on changes in pipeline? I saw that halfway through the year, there weren't necessarily that many changes here. Obviously, the machine was launched at the start of the year. Do we need to talk about anything -- are there some things that have accelerated since the summer? We've seen that Temenos has made some positive comments with regards to European customers' intentions, and they've got a 6-month time line that they spoke about. And then second question on SBS. I'm just coming back to what Laurent was saying. We've got this EUR 50 million target for subscriptions. How is this compared with 2020? What's the basis for comparison here to compare with the EUR 50 million target? And then third question on SBS services. Should we expect in Q4? Obviously, we've seen an improvement compared with the first half, but we should -- what should we expect for Q4? Is that aligned with Q3? Or will there be any drop or what, customer behavior, your strategy? Any other factors that could have an impact here? And then my last question on SBS. You had the summit, this great event where they presented a lot of things, lot of interesting sessions. Can we extrapolate -- how can we extrapolate this? When we have an event of this scale, it means that, obviously, we have ambitions for 2022 in terms of sales. So we have bigger objectives in terms of sales than what we have previously.
Okay. So a comment on the pipeline. I'd say it's carrying on as planned. It's not significantly expanding, but it's not decreasing either. This will be confirmed month-on-month. And then licenses towards SaaS, EUR 50 million was the 2020 figure. So we'll be at EUR 60 million this year. So broadly speaking, obviously, the drop in licenses, we have to confirm this with more detailed figures at the end of the year. But it's -- subscription should compensate for the drop in licenses. That's a plan that we have. Obviously, we're working on our product plans, and we're expecting growth more in 2 years' time because it will take time to consolidate everything. And we're working on transformation of our R&D, focusing on priorities, accepting this change in models and licenses towards subscription, so that we're capable of being more offensive towards the end of this term. And that's what we're currently working on, so that we have a more precise financial vision. With regards to services, same comments. I can't see any disruption here with regards to the basis for comparison, growth in the coming quarters. Obviously, there's a comparison effect here, and then the decisions that will be taken in this quarter, that's what's going to have an impact here. And we can see the major trends, but I think we have to look at this with a bit more perspective quarter-on-quarter. And then obviously, with regards to the summit, we've had very good feedback here, very good news for us. I think the customer very much appreciated this event. There's various expectations and various, obviously, leads that can come out of this type of event. We're talking about notoriety, our image, and I think we've been very strong on the market. And then internally as well, it had a very positive impact. We're very happy with the way this event was organized, and we've had a lot of positive feedback from it. I think we're heading in the right direction for Sopra Banking Software, and this will be confirmed.
So when you talk about in 2 years' time, that's when we're expecting growth. So does that include 2021? Or are we talking about 2022 or 2024?
It's too soon to say. We're looking at this. We're not expecting the start of 2022, not expecting this now. Our work is increasingly solid. We've got a more detailed vision, the model that we planned, so this transition to subscription. We have our product plans, which we should be able to roll out internationally. So they're not completed yet, but we're in a situation where we're making progress every month. But it's too soon to give you detailed guidance. I understand your question, and we are working on this actively.
New question from Nicolas David from ODDO.
Still focusing on Sopra Banking Software. I'd just like to come back to licenses. You mentioned the EUR 50 million compared with EUR 60 million, so quite solid. H1 is solid. So does this mean that H2 isn't as good? Or is H2 less than H1? Or I'm seeing this transition towards subscription? Or is there anything else going on? Is this a pipeline that was built in such a way? Or is there something else that we've not taken into account, and we need to be cautious? Or do we just have to wait for subscription?
I'll answer this straight away because I don't want to forget the next question. This is a conjectural factor. We -- obviously, we're managing big deals here, so it's a big license. Even if we've got lots of deals and we can see a drop. But conversely speaking, if we've got lots of little licenses, then we're obviously heading in the right direction. But we have to look at this on an annual basis, so that -- obviously taking into account this trend has moved towards subscription. We saw growth in Q2. I said, "Okay, things are going well," but the situation can change. But once again, we're more focused on our development in our product plans and subscription and the R&D transformation plan as well.
Okay. Clear. And then for Cassiopae, obviously, there's been a lot of work done here redeveloping solutions today. Are you active in commercial terms? Or do we have to wait a little bit here? Are we just talking about subscriptions with the Cassiopae model? Or is there license activity as well in this domain?
I would like to remind you that for a year now, we are commercializing our offers, so the financing platform, which traditionally comes from APAC and Cassiopae. So we're selling this in subscription mode. Do we have a few licenses? I don't think so. I think we're weak here, but this is what we want to do. We're using this virtuous model that APAC had and this is what we're developing here. Growth and subscription for Q3 was plus 9%. That's what I can say is this is obviously very, very active now, but we've got things under control, and we are seeing growth.
Clear. And I have one last question with regards to services, still linked to financing software, obviously, the services you have. So drop in services revenue in the first half and then the revenue mix that you have, is there a better margin here or not?
In the long term, I'm not going to give you comments quarter-on-quarter because there can be positive and negative factors. But yes, services is one of our objectives. We have to increase our margins in this area. We've still got a few difficult projects. But you'll remember that there were about 20 previously. We've still got 1 or 2 where we haven't resolved everything, but the situation is getting better quarter-on-quarter. And the good news is that we've got room for maneuver in terms for improvement in the coming years for our service margin. Obviously, this is something that is a long-term approach, but we do have a positive trend, possibility to do better. Are we going to see this straightaway as of this year? No, there won't be this one -- there won't be a flagrant change or a really obvious change, but we are seeing improvement, and the trend is positive.
Next question again from Laurent Daure from Kepler Cheuvreux.
So just an additional question. I know it's too soon to have 2022 guidance, but you do have a mid-term guidance to grow from 4% to 6%. I just want to talk about momentum with regards to workforce, which is almost -- which is basically stable from September to September. And then your ambitions for next year, where do we stand with regards to subcontracting and the usage rates here? How is this growth going to be structured in upcoming quarters? You've seen a recovery in usage rates of subcontracting, but I'm just thinking about a more long-term horizon here.
Okay. So subcontracting, yes, we were right to do so. We saw with the crisis of 2020, we were right to have a low rate of subcontracting, not too high. But I think with 10% or 15% of our business is subcontracted in domains that we've chosen to subcontracts, so that's good. So we're not quite at that pace yet. I think until now, we've got 800 additional subcontractors at group level compared to the start of the year. So we'll be pushing this because once we have -- until we have reached this limit, and obviously, we've got to keep pushing, we're going to push our actual centers. I spoke about India earlier. We'll continue to amplify things here even if we have centers in Spain and Poland. And then for everything else, we have a recruitment plan, which is a lot more ambitious this year for next year because -- than what we had at the same time last year. So obviously, with recruitment, we're seeing inertia, more inertia than what we saw a year ago. We're a lot more cautious with regards to our approach for 2021 than what we can be, obviously, if we look towards the past, take into account everything that's happened. We were right to do so. But now we're kickstarting the machine again. In the first half, we're going to be active. Obviously, the market is very tense from this point of view. I'm not saying it's easy, but we have got ambitions -- bigger ambitions than what we had last year at the same time with, obviously, the context that we have. So obviously, there is pressure on recruitment. I can't be -- can't provide full reassurance because, obviously, we have to deliver. But I don't see why we shouldn't be able to deliver. We've been able to accelerate, and we're going to follow this -- we're going to monitor this regularly. We don't want to drop our requirements. Obviously, volume is always possible. But obviously, we're talking about a high-value market. We want to differentiate ourselves here. So we don't want to make any sacrifices here. We've got bigger ambitions and greater investment on this side of things.
We don't have any other questions for the time being. [Operator Instructions] We don't have any more questions. We'll wait just a few moments. [Operator Instructions] So it would appear that we have no more questions. I will hand the floor back to you for conclusion.
Okay. So if there are no more questions, then I'd like to suggest we finish this conference. Thank you for taking part, and I will see you very soon in February at the latest. Have a good day. Have a good weekend, and goodbye.
Thank you, ladies and gentlemen. This conference has now finished. Thank you for taking part. You can now hang up. Thank you.[Statements in English on this transcript were spoken by an interpreter present on the live call.]