Spie SA Q1 2019 Earnings Call Transcript

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

Question: Sylvia Pavlova Barker - JP Morgan Chase & Co, Research Division - Analyst : Obviously, very good organic growth across the board. I'm just going to focus on margin for a second. So could you maybe just talk about why the margin was flat in the quarter? I know that you're not giving the divisional margins, but just to give us a little bit of an idea. With Oil & Gas performing so strongly, I would have expected a little bit of operating leverage to help, and then maybe the French reorganization benefits helping and clearly, the U.K. being down significantly, that's quite a low-margin business as well. So maybe just how do we square these out with the margin being flat is the first question please.

Question: Sylvia Pavlova Barker - JP Morgan Chase & Co, Research Division - Analyst : Okay. We'll see how that goes, I guess, during the -- but could you just talk about whether you are actually seeing positive operating leverage in Oil & Gas? And whether you are seeing any positive kind of margin momentum in France? Or if you can comment at this point.

Question: Sylvia Pavlova Barker - JP Morgan Chase & Co, Research Division - Analyst : Okay. Great. And then just a quick one on IFRS 16. So could you just explain why that's actually a negative to your EBITA in the quarter?

Question: Sylvia Pavlova Barker - JP Morgan Chase & Co, Research Division - Analyst : Yes. That's very helpful. I was just asking because obviously for the full year, you said that it will be a EUR 3 million benefit. So I was just kind of squaring it off with the Q1.

Question: Sylvia Pavlova Barker - JP Morgan Chase & Co, Research Division - Analyst : Okay. Great. And then just finally, on Germany, so you -- obviously, the market dynamics are really good and you are seeing some of the kind of energy transition work start to actually come to fruition. But you mentioned a bit of a lack of employee bottleneck. Is that holding back growth at all? Or could you just give us a little bit of color around it.

Question: Sylvia Pavlova Barker - JP Morgan Chase & Co, Research Division - Analyst : So if I read out from your Germany section, you're saying that there is a high level of resources utilization across the sector. I presumed that, that means maybe not enough employees who are trained for the work.

Question: Rajesh Kumar - HSBC, Research Division - Analyst : Two, if I may. First on Germany. You had a very reasonable organic growth of about 1.9%. Can you give us some color on how much wage inflation you are passing through, especially given the deal you've done with the labor unions there. Second, on the IFRS 16, I appreciate the color you without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 30, 2019 / 7:00AM, SPIE.PA - Q1 2019 Spie SA Earnings Call provided earlier. Just from the balance sheet side, when you're saying you're going to de-gear the balance sheet this year due to tax generation, that's on a pro forma basis and IFRS 16 will add something to it? Or are you talking including IFRS 16?

Question: Rajesh Kumar - HSBC, Research Division - Analyst : No. I appreciate that, but I'm assuming the wage inflation in Q1 should be close to 1.5% to 1.6%. Is that a fair level to assume?

Question: Rajesh Kumar - HSBC, Research Division - Analyst : For Germany? Given the deal over 3 years, if you are running a wage inflation for 2019, I'm assuming the run rate of wage inflation is 1.5%, 1.6%, about that, this year?

Question: Rajesh Kumar - HSBC, Research Division - Analyst : Yes. So net-net you should have better growth. You are -- you have reported better organic growth in Q1 than the wage increase?

Question: Rajesh Kumar - HSBC, Research Division - Analyst : Do you see the subcontracting or supply is rising as well? Or is it just the wages? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 30, 2019 / 7:00AM, SPIE.PA - Q1 2019 Spie SA Earnings Call

Question: Nicolas Tabor - MainFirst Bank AG, Research Division - Analyst : First question would be on the Oil & Gas growth? If I remember correctly, in London, you said that you were expecting a mid-single digit for the full year. However, with the very strong performance in Q1, wouldn't that mean that there would be a strong deceleration in H2 or is it that your guidance was a bit too conservative, what can we expect? And also, if I remember correctly, you had a high concentration in terms of revenue in the past in Oil & Gas. Is this growth coming from a pickup in volume with this historical client or is it more new clients and additional volumes that helped you this quarter? And then the second head of the questions would be could you give us an update on the rest of the divestment of SAG offshore, the pipeline activity and on (inaudible) in U.K.?

Question: Nicolas Tabor - MainFirst Bank AG, Research Division - Analyst : And could you give us there also if you have any indication for H1 net debt and net working capital effect will be in the same line as last year? You already have some visibility in order for market not to be surprised? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 30, 2019 / 7:00AM, SPIE.PA - Q1 2019 Spie SA Earnings Call

Question: Anna Patrice - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : A couple of questions, please, from my side. First, you mentioned about this possible disposal of certain activities. How much could it be in terms of their annual sales contribution? So what could be the possible headwinds to the top line? Second question, probably I missed it, if you can give some indications on the multiples or how much the M&A activity has -- should cost you with those 2 acquisitions, 1 in Germany, 1 in Austria. And if there will be any integration or restructuring costs? You mentioned that the German will be slightly accretive, while Austria will be slightly dilutive to the margins, but if there are some one-offs linked to those acquisitions? And then, yes...

Question: Anna Patrice - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : The first one was on the divestment. Because you mentioned that you will, again, try to accelerate the divestment of some businesses in Germany. So what should be the total annual sales of the divested companies? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 30, 2019 / 7:00AM, SPIE.PA - Q1 2019 Spie SA Earnings Call

Question: Anna Patrice - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Okay. Understood. And then maybe 2 more questions. One is on Germany and one is on Oil & Gas. On Germany, there's a bit of a slowdown. And obviously, you highlight there the high comparison basis and also that you want to optimize your workforce, so to sell them as highly -- as expensive as possible. In the next couple of months, you still have high comparison basis. So in terms of the current trading, should we expect similar trends as in Q1? And I don't know if there has been any impact on your trading. So the fact that if they will be in Q2 this year, does it have positive impact from Q1 and slightly negative in Q2? Or that's something that doesn't really affect your revenues? And on Oil & Gas, there was a question if you see operating leverage, are you improving margins in your Oil & Gas, is this the case or not yet?

Question: Sylvia Pavlova Barker - JP Morgan Chase & Co, Research Division - Analyst : Sorry, just one final question. You said that the part of the German business that you're looking to potentially divest of involves the underground high-voltage kind of construction. So just wondering, because some of the energy transition work is said to be based around underground high-voltage lines, is it part of your strategy not to go for that kind of contract? And would you be focusing on the overground and then on the distribution side as well?