Half Year 2020 Sopra Steria Group SA Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Nicolas David - ODDO BHF Corporate & Markets, Research Division - Analyst : I have several questions in a row. First, the tariff environment during Q2. Some have said that they would pass on the number of cost to clients. For instance, traveling costs that they didn't have to incur. And therefore, this could lead to a price decrease. Is that something that you've done? Has that led to this decrease in Q2? What do you think about H2 for price decreases and structural price decreases that we could expect in such an environment that we are experiencing at present? And I have 2 other questions on the annual guidance and a question on your margin. Your margin guidance says that H2's profitability is going to be a lot lower year-on-year compared with H1 between 130 bps during H2, I think. H1 was really good. You were quite resilient. So what is it that we have to pay attention to? Why are you saying that your margin would drop more during the second half? Because as you said, your company didn't really use the furlough scheme or equivalent, and I'd like to have more details on this. And the third question has to do with FCF. And you're saying 100 to -- EUR 80 million to EUR 120 million and you're going to have EUR 60 million during the second half of the year, that's for free cash flow. And whereas in the past, you generated more than EUR 250 million. I know there's the EUR 57 million to be taken into account. But why would you say that you've been that conservative in your guidance?

Question: Nicolas David - ODDO BHF Corporate & Markets, Research Division - Analyst : Okay. Could you perhaps tell us more about pricing? I understand what you're saying about the end of Q2. But do you think that the environment is going to toughen or ease? For instance, maybe the industries would react differently between aerospace and other... Unidentified Company Representative Well, if you will, we think we're going to have about the same prices. Obviously, there's a lot of negotiation, but we are seeing that the market is starting to bounce back. So we're heading in the right direction. But there is a lot of competition, and everyone is very much focused on short term. So either we'll keep our pricing as it stands or we might have to make a few reductions. Or if we gain new market share, this might have an impact. But I can't see a drastic reduction in our prices, given the environment that we have today. Obviously, if the situation gets a lot tougher in September, then this might change things. But that's not what we're seeing today.

Question: Thomas Poutrieux - Exane BNP Paribas, Research Division - Analyst : I have 2 questions to ask about Sopra Banking. I think you said that licenses were down EUR 7 million during H1 2020 versus 2019. I wanted to know if these numbers are correct. That's a decrease of 35%. Could you confirm this, please? And question number two. When do you think you're going to be back to organic growth on licenses? Do you think this will happen before the end of the year or maybe Q1 or Q2 next year? Unidentified Company Representative So with regards to licenses, I can confirm that there's a drop of EUR 7 million compared with last year. We're about EUR 27 million instead of EUR 20 million. So those are the figures for the first half. For the rest, we see that there's lots of deals. There's a strong pipeline. But obviously, we're waiting for decisions, and I can't make any commitments with regards to how our customers will react up until the end of the year. But I am confident about the long term with the 4 priorities that we've set ourselves. So licenses and, obviously, subscription as well. Obviously, much more customers are moving to a subscription model. I'm confident that we will generate growth, provided that market conditions remain the same as of 2021. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 29, 2020 / 7:00AM, SOPR.PA - Half Year 2020 Sopra Steria Group SA Earnings Call Obviously, this depends on the context. So -- but we see that the pipeline is improving. We've also got greater visibility with regards to risks over time.

Question: Nicolas David - ODDO BHF Corporate & Markets, Research Division - Analyst : Yes, I have a couple of questions to ask. I won't be long. Number one, the ramp-up with the Ministry of Defense in the U.K. Have you seen the effects during Q2 or is it only for H2? I know it's a very big contract for the U.K. I think it's 4% or 5% of the local revenues. Would you say that in Q3 you'll see the effects of this? Or will this be seen progressively during H2 and then impact on the margins from this contract? At the beginning, it was not really profitable. Would you confirm this? And then the question I have has to do with the M&A strategy. What you have in the pipeline? You were very ambitious when the year started. Now that you have more visibility on the momentum, are you still very ambitious? And what are your priorities in terms of geographies and business lines in M&A? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 29, 2020 / 7:00AM, SOPR.PA - Half Year 2020 Sopra Steria Group SA Earnings Call Unidentified Company Representative So with regards to SSCL, we have started activity in the second quarter, but it's quite a low level. We're going to have a progressive ramp-up -- sorry, that was in the first half. We'll have a progressive ramp-up in the second half as of Q3. With regards to the margin, as you said, over the last few years, we've seen the margin being pulled down. Same goes for cash. However, gradually, over time, profitability will increase. This said, the overall profile of SSCL confirms what I was saying before, will be at this -- roughly the same levels as what we've seen in the first half and were aligned with our forecast, including the MoD contract. This is a contract of EUR 350 million over 7 years. So EUR 150 million each year. So with regards to M&A, obviously, the world has changed. We want to come out of this crisis stronger than what we started, but this is maybe not the time. It's not our priority. But we're convinced that as soon as the time is right, we have to be able to adopt an offensive approach, perhaps not in the coming weeks, in the coming months, but this is our strategy.