© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the SPIE Q1 Results Conference Call. I now hand over to Gauthier Louette, Chairman and CEO. Sir, please go ahead.
Good morning, ladies and gentlemen, and thanks for attending our Q1 results conference.So moving to our presentation. As usual, we start with a few pictures, one of the projects for sustainable mobility, with the -- as a combination of photovoltaic power supply and recharge point for vehicles. As you know, e-mobility is a growing trend, and we're very active in that sector.Next picture pertains to a contract we renewed for Lufthansa in Frankfurt. Last year, we did renew our last contract for Lufthansa in Hamburg. This one pertains to the simulators for training of pilots. And it's the last facility in Frankfurt, which we have been servicing for a number of years. We've been asked to renew the contract ahead of renewal date because of quality of services and our customer being keen to ensure that it would retain our services going forward. This was without a tendering process.Moving to -- still in Germany but moving to transmission is a picture of a transformer station in Baden-Württemberg with an element of gas-insulated switch gears. So fairly intricate. Gas-insulated switchgear allows you to save a lot of space, and it is really is a level of technical expertise of SPIE, which allows us to do this sort of work here.And last picture is Berne Canton in Switzerland where we did renew a major contract for managed services, servicing the IT networks of Berne Canton for all their public servants. This contract has been renewed for another 8 years, and it's a major feature of our Swiss operation.So moving to our results for the first quarter. So we had a different start of the year with revenue growth of 26%, you see with a large impact of the consolidation of SPIE SAG. Organic growth of 2.6%, which is obviously pleasing after a number of years where we're in the lower territory. EBITA has been moving up 4.4% compared to the Q1 2017 pro forma with margin at 3.7%, also slightly up compared to the 2017 pro forma.Organic growth 2.6%, with good momentum in our 2 main geographies, so France and Germany, which, as you see, accounted for significant part of the group revenue. In these 2 countries, we have the large reorganization projects going on and are well on track as the organization in France has made a very significant progress. And in Germany, the integration of SPIE SAG is virtually complete now, and it will be complete by -- fully complete by the second half of the year.In both these countries, we have now leadership position, technical excellence, and we do focus on innovation, which, obviously, a portfolio of customers who allows us to come up with a lot of new solutions and new offerings. So the market momentum is good in these 2 countries, and generally, let's say, in Continental Europe, but more importantly, for us in these 2 countries. And the organic growth is above 4% for the first quarter. It is expected to moderate over the full year. We'll come back to that.In the M&A front, we announced in February the acquisition of Systemat in Belgium, and it has now been closed yesterday. So this is, for us, an entry point in the ICT business in Belgium. As you know, SPIE is focusing a lot on ICT services. We added a gaping hole in Belgium in this regard, and now it is really a good start in this market. Conversions of technical and digital services is something which we will see happening over the next few years. It's really important that we are able to offer these capabilities to our customers. So a satisfying move on M&A. We have a good pipeline of M&A going forward. As we explained, it is more skewed towards the second half of the year for a number of reasons, which we had explained at the last conference result, focus on integration in Netherlands and in Germany, restart of stronger M&A activity in France. And we have seen the plans for M&A in the U.K. at the moment.So with that, I will hand over to Denis who will take you through the financials.
Thank you, Gauthier. Good morning to all. A few highlights about the final results of the quarter. So firstly, I will come back to the revenue and EBITA number for the quarter. You see here that, indeed, if we compare to our pro forma benchmark for the year, we report revenues with a 1.9% year-on-year growth. And EBITA with a slightly stronger growth, an excess of 4%, on the back of EBITA margin, which is 10 bps higher than that of the pro forma at 3.7%. Therefore, in line with our guidance for the year.Another discussion is about the breakdown of the growth for the quarter. So as you see, the 26% growth, excluding foreign exchange effects, was mainly on the back of the consolidation of acquisitions of plus 23%, but the strong organic growth, which is growth mostly by France and Germany, is also a significant contributor. We have a foreign exchange effect, which is close to minus 1% as the euro has been rising against virtually all of the other currency in our books, notably, of course, the U.S. dollar, the pound and the Swiss franc.And finally, coming back to our pro forma benchmark. And you remember that last year, we reported a 4.9% profit margin. This number is restated for the IFRS 5 effects, which were included in our full year accounts. So this is absolutely no change with the IFRS 5 restatement that were enacted in our 2017 published figures but obviously injected in the first quarter number. So this 4.9% was diluted from the full year consolidation of 2017 acquisition. That is to say that SAG on the one hand and Ziut on the other hand with a positive impact from the other acquisitions. The result being 3.6% for the first quarter. Again, it is benchmark. Again, we are reporting a 10 bps improvement at this stage with the backdrop that Gauthier will come back to. Good momentum in Germany & Central Europe and in France with the continuing exception of the Commercial sector in France, counterbalanced by continuing pressure in the U.K. and Oil & Gas.So again, this Q1 2018 trend just, too, confirms the full year expectations of a slight EBITA margin increase against the 2017 pro forma.And this, I will hand over to Gauthier.
So we'll start the business review with France. As you see, we have a growth of 15%, 10% getting from acquisitions, and these are mainly SKU in the ICT services. Good organic growth up to 4.7%. We see improving levels of activity in the industry. It's a trend that started in the second half of last year and which is lasting. We do see the same dynamic trends in Telecoms, in fixed. Also, we've talked a lot about the FTTH in previous calls, but also in the mobile sector. And as we say, we see a better pricing environment in this area.We are pleased to be able to report success on the front of our Smart FM offering. Integrating Internet of Things and data analytics in our maintenance services is something which encounters a very favorable echo from our customers and which did allow us to strike a number of successes this year. Altogether, we see the activity levels to remain strong over the whole year looking at our backlog. But obviously, we see the organic growth tending to moderate. We have the higher comparable base in H2. You remember that we started to experience good organic growth in H2 last year, and we'll keep on being very selective in the Commercial sector where the challenges in terms of price level remain very strong. It's really a shame because we -- there's a good volume available on the market, but somehow, the price has stubbornly refused to get higher. So this is the snack to our margin momentum. In all those areas, we see a very decent margin momentum, not in the Commercial sector.Regarding our reorganization, it has progressed well. We've gone through all the steps with the [indiscernible] with the customers, and we're seeing that we'll be essentially complete by midyear. It will -- it has start helping. It will continue helping. And it will boost our commercial responsiveness. It will reenhance our ability to maximize our expertise and to share quickly the innovation between the various teams. And we see where things at as the regional agency network will allow us to keep a stronger customer proximity, which is really the future of our business in France and in other countries.Looking at our Germany & Central Europe segment. So again, obviously, the contribution of acquisition is very significant with 82.6%. And in Germany, in fact, we are nearly doubled to plus 92.5%. So we see significant trends bringing us, as you know, as #2 on the market in Germany. You see that the organic growth has been very good in the segment, 5.6%; 4.3% in Germany alone now and with a slightly detrimental foreign exchange impact stemming from Hungary as well.So highlight of the first quarter. Integration of SPIE SAG, as I was saying, is nearing completion. We are continuing on delivering on the anticipated synergies, and we're reconsidering that we'd be there for the year. Transmission projects have given us good visibility with a number of positive awards. And we are continuing to achieve progress on the sale of our Gas & Offshore business.The organic growth in Q1 has been strong in Germany as we sought 4.3%. And even for Lufthansa, I was mentioning at the beginning, is a good example of the kind of relationship we are fostering with our customers right now. And we're really worried about capacity and keen on retaining our technical capacity. So that's good in terms of customer relationship because of the positive impact on pricing. And we see, as I said, a good activity level in Transmission Services, and especially in the first quarter, we had a good level in substation. Over the year, we've seen that the organic growth will moderate. We see that comparable basis, especially at SPIE SAG, will be stronger for the second half of the year, yet we're seeing that we'll have organic growth, which would be at least in the range of 2% for the year.In Central Europe, the overall trends in line are depending on what country you're speaking, but obviously, the main one being Poland and achieving a decent performance. Altogether, the segmental margin is well oriented for the reasons I just described and we see with the positive effects of the SAG integration synergies continuing to kick in.Moving to North-Western Europe. You will see a slightly different pattern in terms of organic growth at minus 1.4%. Part of it stems from the anticipated soft activity in the U.K. and especially in our industrial segment. So this was a hesitant start to the year in this segment. We're seeing that it should improve a bit over the year. In the Netherlands, due to various issues in planning, permission and so on, a few energy and transmission contracts have been delayed for the start. But they will be starting now and contributing for the year. We had a good organic growth as planned in Belgium.The Ziut integration is in progress, and it's a lot of work to be done. Ziut is a Dutch leader in connected public lighting. It really gives us a good position on the Dutch Smart City market, which is very active and very innovative and a good access to this type of [indiscernible] customers. The restructuring plan is being implemented as we speak, and it will bring contribution for the year. The goal remains, in the next 2 years, to bring Ziut activity to the our -- to the group's profitability level. A lot to be done; a lot being done right now.Then finally, we -- as announced, we completed the sale of our Moroccan subsidiary, including -- occurred towards the end of March 2018.So moving now to Oil & Gas and Nuclear. Organic declined 7.1%, in line with our expectation and no major surprise here. We have a modest organic contraction in the Nuclear due to contract phasing, but it's in line with our full year expectations, and we see midterm trends have remained extremely good in our Nuclear activity. We have a good and maybe even an increasingly good visibility in this sector with Grand Carénage and also recent contract win, both in the electrical and in the mechanical part of the business, both for [ EDS ] and for now [indiscernible] part, which is the [ GE Exane Areva ]. Oil & Gas Services, in line with the expectations, which are not too buoyant. So we had a high single-digit organic contraction. It's likely to reduce some during the year. We continue to move and to improve our diversification in the downstream activities, and especially we have a group progress in a number of countries in the Middle East. And this is proving very, very helpful. And the margin pressure is unrelenting. It's really something that we continue experiencing, and it will have a small impact for the balance of the year because we still are producing on the first quarter to develop margin, which is higher than the one anticipated for the whole of the year. But as I said, in terms of volume, we see -- we tend to see that our forecast for the year gains on solidity.So coming for the -- to the full year outlook, it is unchanged. So we expect a stronger revenue growth, and we expect organic growth to improve compared to 2017. And it's not impossible that it ends up positive. We look at about EUR 200 million of total revenue. EBIT margin and specifically with the first quarter, we are considering to meet the guidance. Obviously, we'd be working at 100% cash conversion, which is a feature of our business. And it's hard work, but we always manage to get there. And we're looking at 40% dividend. So there's no change in there in this regard. So the 2018 guidance is confirmed.So thank you for your attention, and we'll now move to Q&A.
[Operator Instructions] First question, Rory McKenzie, UBS.
It's Rory here. The first question is on the organic growth you expect in France and Germany on [indiscernible] tougher comps. Can you talk about your assumptions are sequentially? I guess, some of the macro indicators suggest activity levels should still be building. And then secondly, on organic growth, can you go into a bit more detail on Nuclear? What is it about the contract structures this year that meant there was a decline in Q1? And will that bounce back towards the rest of the year? Or is it just a change level of work for the year overall? And then I have one on margins. Maybe we'll do then the growth ones first.
When we gain growth -- firstly, the Nuclear [ bond ]. It is a [ bond ]. We are releasing quarterly organic growth. But as a generic comment, it's a -- the reason we didn't do it in the past is that we do not have such a strong focus on these quarterly figures, and so we do not jump to conclusions either one way or the other. So in Nuclear, yes, there were a few shifts and a few differences in the first quarter. It will -- it should and it will rebound over this year. And as we mentioned, we are focusing for the year's small contraction due to the phasing out of the EPR. Once the phasing out will happen but maybe slightly less than planned or less -- faster than planned on one side. And on the other side, the Grand Carénage activities and the recent contracts will kick in. So overall, no worries about nuclear for the year. And yes, a small rebound for the second half, for the last 9 months, I'd say, at this stage. And for organic growth in France, the year's comparable will become more difficult, and we did start experiencing a rebound versus the second half and also over the last quarter of last year. And on one side and on the other side, we are -- with the current Commercial sector market, our focus will remain on margin and not on volume. So we'll not hesitate to do even less in the Commercial sector at this current level of price. So this is why we look at -- on organic growth in France reducing over the year for these 2 reasons. Yet, we think it will remain positive, absolutely. And as I mentioned in the past, we've seen that we should probably -- and we see that later in the year, but probably, we should be closer to the 2% for the year.
Okay, that's helpful. And then just on the underlying margin improvement of up 10 bps. Is that due to synergies from SAG coming through? Or is that the recovery of margin in some existing activities? How do you characterize that margin improvement?
I think you're spot on, Rory, in mentioning the SAG synergy, and it's the main contribution. Obviously, it will not suffice to hold up the margin. So it means also that the margin in the segments are holding ground very, very decently, and the improved -- the slight improvement overall is linked with SAG synergies.
Next question, Christophe Chaput.
I wanted to come back on the EBITA increase in Q1 2018, 55 spot EUR 1 million versus 52 spot EUR 8 million on a pro forma basis. How much of that is linked with the SAG synergy because you gave, in fact, some ID for the full year? But just if you -- we could have the figure for the Q1, it would be great. And the second question is on Germany. So organic is 4.3%. Is it only a volume effect? Or do you also see some price effects as well?
Synergies contribution, we look at -- compared to -- we look at roughly EUR 3 million for [indiscernible] that generate I'm going through the fourth quarter figure. And regarding the organic growth, yes, there is -- arguably, there's an element of a pricing effect, but it's also an element of amount of work and customers quite keen on churn work for the facility part and also, for instance, in the transmission part of the business, we've been fairly active on substations that are a bit less depending on weather conditions. And our substation activity in transmission has been very good over the first quarter. Compared to the same one last year, we have an element of chunkier projects this year. And depending on the phasing, you achieve the different organic growth of over the quarter with my caveat on the deep meaning of quarterly organic growth. But altogether, the situation is favorable in Germany. There's a lot of demand from our customers, and you see we focus a lot on resources, attraction of resources, retention of resources because it's really more than ever a key element in Germany but also in other geographies.
Next question, Anna Patrice, Berenberg.Next question, [ Roland Vatum ], [indiscernible] Partner.
After the full year results, there has been some concerns about the changes in working capital. For example, we saw an increase in the accrued revenues in terms of days. Could you please explain what happened there? And should there be any concerns going forward because of this topic in the future?
Well, firstly, you have noted that group working capital was fairly steady, and that the SAG, because I will come back to SAG, the SAG working capital at the end of the year was a satisfactory one. Then the phenomenon that you resort to, which is a larger increase in accrued income and billed revenue is due to the consolidation of SAG, at which there is a slightly different pattern from that of the group. And so far, SAG enjoys a large number of significant advanced payments, and those advanced payments have, as a counterpart, both in the management meaning and in the balance sheet meaning have, as a counterpart, larger amount of accrued income. So you have at SAG, much more advanced payment than we have at SPIE. The balance sheet at the end of the year, there is EUR 260 million of advanced payment on account of SAG. And this is in everyday management. The explanation and the counterpart of unbilled revenue, which tends to be billed at until the advanced payment is consumed. It is a purely structural and an uptick impact. And obviously, we are glad to get those advanced payments. They are regularly granted as they are spread across a good part of the business, and they are standard feature of the industry. So there is no risk embedded in this situation. And it doesn't mean that the progress on the jobs is not reviewed and approved by the clients. So it is not an unbilled revenue item, which is per se, significant of risk. So what I propose for the future, and I am enforcing together with Germany, is firstly, to keep those advanced payments as much as possible; secondly, to report the unbilled revenue, which corresponds to this phenomenon shown as a separate line item from the everyday, if you want, accrued income; and thirdly, obviously, to press ahead, but it isn't -- it is not related to what we have just said, to press ahead with the improvement in working capital at SAG. As we are saying, this is a good working capital. It is based largely on this advanced payment scheme, and we will complement that by working hard on a day-to-day basis, [indiscernible] on the daily invoicing pattern. So we will not rest on our laurel with the advanced payment, but add an additional layer of working on the everyday invoicing. So no risk, no particular alarm to raise, and business as usual for the everyday improvement of working capital.
Next question, Rajesh Kumar, HSBC.
Just following up on that SAG accrual question. If we look at IFRS 15 in your annual report, you made a statement that you are compliant with IFRS 15. Did you have to change anything at all? And if so, could you help us quantify the negative or positive impact it might have had, especially because SAG have got longer-duration contracts with upfront payments? And the second one is you've not so far quantified the impact of IFRS 16 in -- which will come in forth from next year. Have you run any scenarios to think about what could potentially your profitability look like on that basis? And finally, the last one is, could we please have the impact from CICE and working days again on the organic growth figures?
So regarding IFRS 15, so because I understand you are asking about 15 and 16. But 15 is -- we have the kind of pattern that I just described for SAG. We have it, to a lesser extent, on some of the activities of the [indiscernible] scope of SPIE and notably, in the Netherlands. And in this respect, this has been deemed as fully compliant with IFRS 15 by our auditors. And so I expect it will be the same for Germany, but it is not conclusive at this stage.
Did you have to change anything? Or was it everything as usual and still, you're compliant?
No. The history group has been vetted as the IFRS 15 without any change.
Next question, Simona Sarli, Bank of America.
A couple of questions from my side. So the first one, so you reported like clearly, very good organic growth at plus 2.6%. Was to -- did you see like any impact from bad weather in Q1? And if so, are you able to quantify what would have been on your organic growth profile? And the second question is a follow-up on your accrued income related to SAG. Could you please quantify how much were accrued income for SAG in 2016? And how much they developed in 2017?
Well, first, to the question of weather, we're basically not in the business of selling barbecues, and so we do not record whether that -- currently, what we could say is that, obviously, some of our activities is more impacted by the weather like transmission and distribution. But within this activity, I think there are also the element like planning permission, like the amount of work we do in substation, which also contract-saving. So altogether, we didn't have a great weather in some areas of Germany, especially in the north, over the first quarter, but the pattern hasn't been widely different from where it was last year. And then sorry, I didn't understand the second part of your question.
The second question was regarding accrued income. Is there any chance that you can tell us how much was also in 2016, specifically for SAG? And how much was in 2017 for SAG? So without considering also the impact of other acquisitions in '17.
So for -- now for 2016, I regret that, from the top of my head, I will not be able to give an answer. And for 2017, I'm looking at my colleague for a bit of help. I think it's roughly EUR 300 million.
Yes.
Okay. Was this, like this EUR 300 million, without going into the details of the exact number in '16, was pretty much similar? Or this EUR 300 million is significantly higher to what you had in '16?
No. It is -- this is Denis speaking. I don't have it from the top of my head, but it is really similar in substance.
[Operator Instructions ] Next question[Audio Gap]
Sorry, I think I got cut off on the IFRS 16 and the CICE impact.
IFRS 16, so we are in the process of reporting the impact on -- of leases especially on vehicles. So we are -- we work at it for the deadline. It is not right, right now. So we may talk more about it at the end of H1 or Q3, we'll be all set.
Understood. And the CICE impact, please?
The CICE impact? So we -- that's an impact on the underlying margin. So far, there was a tax credit in a certain pocket of payroll, which was 7% of, say, the payroll. And we had a credit, which was in the order of EUR 27 million, which was reported in EBIT, okay, in EBITA. And this year, what's in effect is that this credit decreased from 7% to 6%. And this point is obviously in the order of EUR 3.5 million. It will depend at the end of the year of the exact change in payroll, obviously. So that's why we say that we have a corresponding loss in the underlying margin in France, which is offset by the overall underlying improvement of operations. So you can bank on EUR 3.5 million, give or take, a couple of hundred -- EUR 100,000.
Understood. Are you going back to clients and trying to increase the price for the services something to offset this?
It's part of the pricing negotiations, obviously. At this stage, our customer were quite prone to ask us exact share and the pound of flesh with regard to CICE. And so obviously, that’s one of the argument we bring will forward to them. But to say that we are going to recoup it euro for euro, that will be a bit bold.
[Operator Instructions] No questions.
So if we have no further question, we'll thank you for your attendance this morning. And on the back of this decent start of the year, we continue to focus on good execution and delivering on our guidance. Thanks a lot. Have a good day.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.