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Edited Transcript of SPIE.PA earnings conference call or presentation 8-Nov-19 8:00am GMT

Nine Months 2019 Spie SA Earnings Call

CERGY-PONTOISE Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Spie SA earnings conference call or presentation Friday, November 8, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gauthier Louette

SPIE SA - Chairman & CEO

* Michel Delville

SPIE SA - Group CFO

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Conference Call Participants

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* Christophe Chaput

ODDO BHF Corporate & Markets, Research Division - Analyst

* David Roux

BofA Merrill Lynch, Research Division - Associate

* James Peter Winckler

Jefferies LLC, Research Division - Equity Analyst

* Laurent Gelebart

Exane BNP Paribas, Research Division - Financial Analyst & Analyst of French Mid Caps

* Nicolas Tabor

MainFirst Bank AG, Research Division - Analyst

* Paul Daniel Alasdair Checketts

Barclays Bank PLC, Research Division - Director

* Peter Testa

One Investments S.A.G.L. - Analyst

* Sylvia Pavlova Barker

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Hello, and welcome to the SPIE 2019 9 Months results Presentation. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. (Operator Instructions) I will now hand you over to your host Gauthier Louette, CEO; and Michel Delville, Group CFO, to begin today's conference.

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Gauthier Louette, SPIE SA - Chairman & CEO [2]

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Good morning, ladies and gentlemen, and thank you for attending our Q3 results conference call. I'm very pleased to be with you this morning to comment on our solid performance over the first 9 months of the year. We achieved a continued robust revenue and EBITA growth. We posted a strong 4.2% revenue growth, excluding ForEx, with a robust organic growth of 2.7%. And our EBITA grew 4.8% to reach EUR 263 million. Our EBITA margin was stable at 5.3%. And with these good figures, we confirm our full year outlook for 2019.

Now I would like to stress our good performance in both France and Germany, which together represents 65% of the group's revenue. In France, which is 38% of the group, our new organization is performing well in a favorable market environment. We had a 7% revenue growth over the 5 -- the first 9 months with a strong organic growth, up 5.5% over the 9 months, which includes a record organic growth of 7% in Q3. This is a reflect of the success of our new organization in 5 divisions, well balanced, dedicated to specific market segments in order to better match customers' requirements.

It also speed up the spreading of innovative offers, which increased our visibility and differentiation on the market, such as SMART FM 360° offer for digital maintenance processes. We're also attractive on the job market, which is key in our business and very especially today, and we're able to achieve more than 1,800 recruitments since the beginning of the year.

In Germany, which is 27% of our revenue. Our activity portfolio is well positioned and benefits from strong drivers. So we had a 2.8% revenue growth over the first 9 months, with 0.8% organic growth on a high comparison basis and 950 recruitment since the beginning of the year. This is a very good performance given the current scarcity of technician on the German job market. And on top of this, we have roughly 200 apprentices which started their career with SPIE this year. It's important for us to attract our experts very early. And we offer a wide variety of jobs to anyone with a patience for technology and looking to join a company that makes the energy transition a reality.

So we have a strong exposure to attractive end markets with strong secure drivers. Energy is 41% of what we do, services to the electrical grid, which are driven by transition to low-carbon energy and all the renewable energy coming from the North Sea and Baltic Sea.

Efficient building, which is 27% of the activities, so mainly technical services with material contracts. And clearly, the drivers are energy efficiency and the digitalization of our customers' assets. Smart City is 21%. So transport infrastructure, telecom network, public lighting, is driven by urbanization, connectivity and new communication tools.

And then industry services, which for us is services performed in industrial facilities, they account for only 11% of what we do in Germany. And we have a diverse exposure; automotive, aeronautics, manufacturing, food, pharmacy, in these industrial facilities we are, in fact, [accent] for the processes they serve. We maintain the facilities around the processes. And clearly, it is an area where we'll be looking at growing in the future.

So at group level, where the robust organic revenue growth, 2.7% over the 9 months, which is driven by a strong organic growth in France, 5.5% with a record Q3 at 7%, continued high activity levels in Germany and Central Europe, up 1.9%; a decrease in Northwestern Europe due to continued strong contraction of revenue in the U.K., which is definitely reflecting the Brexit uncertainty and soft Q3 in Belgium due to contract phasing and comparison basis. We were up 15% in Q3 last year. This is not representative in Belgium for the full year trends in the country. And finally, a strong organic growth in Oil & Gas and Nuclear at 10.9%.

Moving to Page 8 and bolt-on acquisition, added EUR 210 million of revenue this year. We have completed 4 acquisitions over the first 9 months, adding EUR 210 million of full year revenue. Our full year target of -- which was EUR 200 million is obviously now achieved. And it is remains to be seen what could be done before the end of the year. This acquisitions are perfectly in line with our strategy as well as strengthening our ICS and Building Tech Installation division in Germany. Developing our footprint in Austria and expanding our capabilities in attractive markets in France, such as the industrial robotics and automation services.

And we also had some activity to disposal, and we have some good news in Germany, we completed the disposal of the former SAG Gas & Offshore division. So for the sake of clarity, it obviously has nothing to do with our oil and gas division. This is only in Germany. It does primarily with nearshore cabling and pipeline construction in Germany.

So as you see on the chart on Page 9, the nearshore cabling activities was sold to Boskalis last April. The transaction was closed in April. It has been signed end of 2018. And last week we signed an agreement with Vorwerk for the sale of the Construction & Gas Technologies activities. It's likely that this would be closed before the end of the year, and this will mark the full exit from the SAG Gas & Offshore division as planned as and announced as soon as we acquired SAG.

And before I hand over to Michel, we are pleased to announce that we are finalizing a new employee shareholding plan as you see on chart Page 10. Employee shareholding, as you know, is at the heart of our model. And together, employees and managers own roughly 9% of SPIE's capital. With the plan this year, we were one of the first companies to use the full possibilities offered by the new French PACTE law, by offering a 30% discount on the reference share price for a 5-year plan. Previously, the discount was kept at 20%. The subscription is just over. The final results are not known yet, but we estimate total investment from SPIE employees above EUR 21 million, which was the level achieved last year.

Final results will be communicated in December. But we are pleased about the outcome. It shows once again the strong motivation of our plays to embark into our long-term, value-creation journey. And I remind you that more than 1/3 of our employees are shareholders of the company.

Now we hand over to Michel, who will comment on 9 months' financial figures.

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Michel Delville, SPIE SA - Group CFO [3]

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Thank you, Gauthier. Good morning, everyone. So as Gauthier, have just pointed out, we achieved a solid performance over the first 9 months of the year. So if you look at the Slide 12, you see that our revenue has increased by 4.4%. Our EBITA grew by 4.8%. And our EBITA margin was stable at 5.3% for the 9 months of activity.

In the Q3, specifically, as you can see on the second table, the revenue growth was up 5.8%, and EBITA growth was 5.1%. This includes the full contribution of the bolt-on acquisition achieved in 2019 that Gauthier has just mentioned. So the EBITA margin was stable as well in Q3. I'll remind you that our presentation excludes the impact of the implementation of IFRS 16 for the purpose of consistent comparison with the first 9 months of 2018 and also with the group's 2019 full year outlook. On the last one -- of the tables. So on the right side of this chart, you can see that the impact of IFRS 16 on the group EBITA is very marginal and slightly positive and with no impact on EBITA margins.

Moving to Slide 13. We can see here that over the 9 months, we had a 4.2% growth in revenue, excluding ForEx. Organic growth was at 2.7%, with 2% organic growth in the third quarter. Acquisitions accounted for 1.8%. And so Gauthier has already reminded that these 4 bolt-on acquisitions that we have acquired, that we have achieved in the beginning of this year represent more than EUR 200 million of full year revenue. And of course, this is opportunity to stress again that this bolt-on acquisition is really a key in the SPIE growth model as evidenced again this year.

On Slide 14, you will see the EBITA margin for the 9 months that I mentioned was stable at 5.3%. You can see from this chart that our EBITA margin follows its usual seasonal pattern where it gradually increases to the year. Quarter -- you see the quarter 1, the first half year and then the 9 months. So it has been consistently stable quarter-after-quarter compared with last year. On the one hand, as you know, we have challenges in the U.K. and also duty in the Netherlands. But this has been offset by improvements elsewhere and a positive mix effect. Thank you. I will now hand back to Gauthier for the 9 months business review and conclusion.

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Gauthier Louette, SPIE SA - Chairman & CEO [4]

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Thank you, Michel. So looking to performance by segment and starting with France on Page 16. So we had a strong organic revenue growth of 5.5%. Again, a record 7% organic growth in Q3, so we have been accelerating. Our new market-focused organization is demonstrating its effectiveness and with a good response from our customers.

Telecom infrastructure definitely is driven by optic fiber rollout, which remains on a very high level. And we start to gear up for 5G, which should happen sometime next year. We have also high activity in Information and Communication Services. We are partner of choice for digital transformation bespoke solutions. And we see also dynamic trends in industry services and now the acquisition of Cimlec Industrie is scaling up our offering in automation, robotics and process optimization.

And finally, commercial installation has been a goal to grow slightly while maintaining a high contract selectivity, but we did see some improvement on the margins as well.

Two examples of contracts: One is the IT services for CMS-Francis Lefebvre, which is a recurring customer of SPIE, and we were using the capability of the company 2 years ago, S-Cube, in the area of hyper-converged solutions; and then with the SPIE CityNetworks, development of the river banks of the Allier, in the area of Vichy where, again, we are working on public lighting, video surveillance and to try and make it as environmental-friendly as possible.

Moving to Germany and Central Europe, Page 18. So with the continued high activity level in Germany and in Central Europe, 5.1% growth, 1.9% organic growth. In Germany, organic growth of 0.8% on -- as I remind on a high comparison basis. We do see high demand for technical resources across the sector. You see the secure driver, energy transition, energy efficiency, digitalization on the minds of all our customers. The customer portfolio is very diverse. We have a limited exposure to the industry as such. And then we finalized the acquisition of Osmo in September. It expands our capabilities in technical equipment for tunnel systems and traffic control center, so really a new area in Germany. We're strong in these competencies as well in Europe. It's good that we're able also to deploy them in Germany now, and with a good revenue growth in Central European countries and in Switzerland as well.

We've given a few example of contracts for one -- I mean, produced over the last quarter. So we have the facility management of the Caffamacherreihe in Hamburg, which is a redevelopment of technical facility system in the building, which have been recently renovated. We also do photovoltaic power plants in Hungary, and this one happens to be the largest in Hungary. So it's under commissioning now It's able to supply more than 6,000 households with electricity. So solar plants are really in development all across Europe.

And then an example of e-mobility, not with cars but with buses this time, and this is in Poland, Grudziadz, 150 kW fast charger at bus stops. Obviously, we will have to modify the grid accordingly to cater for this additional needs.

So in Northwestern Europe. I'm moving to Page 20. We had robust trends in the Netherlands, activity still very low in the U.K. and some impact of contract phasing in Belgium. The revenue altogether declined by 3.4%. In the U.K., the Brexit uncertainty continue to weigh heavily and sequentially worse than H1 in Q3. We did amplify our cost reduction actions. The good news is that finally the data center activity is moving ahead. And we were mentioning a number of contracts, we're expecting another become reality, should help a bit towards the end of the year.

In the Netherlands, we saw robust organic growth. We have numerous opportunities from investment in infrastructure in the energy transition and in optic fiber rollout, which is really happening this year. We saw robust industry and building services trends as well. And the SPIE infrastructure, Infratechniek which is the new name of the former Ziut, turnaround is in progress. It is slower than anticipated, but we're working hard at it.

In Belgium, we had the soft third quarter. It is not representative of the full year trend. And we had a strong comparison basis, and we made plus 15% in Q3 last year, and there is some effect on contract phasing. We're involved in transport and electricity infrastructure projects. On the phasing when they start, when they are planning to start and when finally the customer gives the authorization, there's always a bit of volatility. It did happen on the Q3, but there is no impact on the trend for the full year, which is good in Belgium. So nothing really to worry about.

Examples of new contracts. So for the Amsterdam Council's building, we'll be maintaining for the next 2 years several building of the Amsterdam Council, municipal district office, parent-child centers, waste collection area. We are developing active solution to make these buildings more energy-efficient and, therefore, more sustainable. And as you know, Amsterdam is a city which is very demanding on the environmental progress.

And as I mentioned several times, Cisco is the first supplier of SPIE, so it is nice for a change that Cisco also becomes a customer of SPIE. It's good to have some reciprocal business. And this is happening in the U.K. at Cisco's Belfont Lakes offices, where we are doing some electromechanical installation works as well as some information and communication services towards their servers.

I'm now moving to Oil & Gas and Nuclear. We have a strong organic growth and definitely driven by Oil & Gas, all together 10.9% organic growth. Our positions in West Africa in Oil & Gas are strong and they're really enjoying a good level of growth now. So year-to-date growth in OGS does frame up our estimate for a high single-digit organic growth over the full year. So it's really nice to see Oil & Gas back in strong positive growth sales story.

We also had high activity levels in Nuclear Services, more activities than planned on the Flamanville EPR, the large new plant in Normandy. Now this follows recent planning adjustment on the plant's construction schedule. So altogether, for the Nuclear, our activity of the full year should be comparable to that of last year, an improvement from what we were planning at the beginning of the year. And we saw the full year consolidation of Fluigetec, a small company involved in leak detection, which we acquired in 2018, and it's performing very well.

And to conclude, our 2019 outlook remains unchanged on the back of a very solid performance over the first 9 months. We're really fully on track to achieve our guidance. We are very confident in the fundamentals of our businesses, and we are enthusiast about these long-term drivers. Clearly, and we see it very definitely now, our customers are increasingly focused on climate change, and we are actually part of the solutions to address it.

So I'd like to say today is, more than ever, a good time to be an electrical engineer. Thank you very much for your attention. And Michel and I will now be available to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from the line of David Roux from Bank of America Merrill Lynch.

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David Roux, BofA Merrill Lynch, Research Division - Associate [2]

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I've just got 4 questions from my side. Firstly, on the U.K., are you absorbing further restructuring costs over and beyond what you did in the first half? Then my second question is on Germany. The business has been fairly resilient. So it has slowed sequentially in the third quarter despite a much easier comp. Perhaps you can provide some -- the likelihood of acquisitions guidance in the fourth quarter?

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Gauthier Louette, SPIE SA - Chairman & CEO [3]

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So turning to U.K., yes, to the slow quarter. And as I said, probably could improve towards the end of the year, thanks to this data centers contract, which are happening now, which are now in the order book, and we'll be executing. And yes, we did step up EBITA, the restructuring efforts in the U.K., so it will be some EUR 2 million to EUR 3 million to the end of the year in terms of restructuring costs in the U.K., so a bit more than what we have seen at H1, yes.

In Belgium, Q4 last year was clearly not as strong as Q3 last year. And again, as the organic growth in the quarter have a limited meaning in our type of business, so the comps are easier. And the contract which were slightly delayed, we are now executing them. So we see a very reasonable trend for the Belgium for the whole year. So I think the slowdown in Germany, again, it is whole year, some effects of contracts like data center, when they start, when they stop, et cetera.

So -- but altogether, we don't see a slowdown in Germany. I think our activities in energy and distribution remains very strong, and the demand from the customer is high. The tendering activity is very strong right now. So both on the high-voltage and on distribution, we're really on a solid trend. As I said, our exposure to the industry itself is limited. But even so, we still see from others, so our customers, a very reasonable level of activity in their own processes. So it's -- we are confident regarding the German activity this year and also going forward.

So -- and if there was some element of slowdown, it would not be such a disaster because the market is really overheating at the moment. So in terms of finding the right processes, there'll be some positive element. But again, we don't see a major shift at the moment at all. And regarding M&A, still a few small things under discussion now, but there would be no very significant movement, if any, until the end of the year.

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Operator [4]

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The next question comes from the line of James Winckler from Jefferies.

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James Peter Winckler, Jefferies LLC, Research Division - Equity Analyst [5]

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Just had a couple for me. First off, in terms of margins specifically in France. A few companies have flagged that the headwinds, the cost headwinds related to CICE get easier into Q4. And I'm wondering if that is in line with what you would expect as well for your company in your France division. And then also in terms of the disposal of the remaining Oil & Gas and SAG, curious if you could give any color at all in terms of the expected proceeds. Not sure if you touched on that, and I missed it in that portion of the presentation.

And then lastly, just what is implied of the actual organic growth in the U.K., does that mean you're kind of negative double-digit organic growth in the U.K.? And you've touched on that improving into Q4. So does that mean sort of still declining, obviously, in Q4, but at a less exaggerated rate?

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Gauthier Louette, SPIE SA - Chairman & CEO [6]

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So for the CICE, has no view on the quarterly impact of CICE. Regarding the -- not the Oil & Gas, the gas and offshore German divisions, so no, we're not communicating on the proceeds. But clearly, we had mentioned that the whole gas and offshore story would be fairly cash neutral for this year, and this is where we are.

And regarding U.K., yes, we have double-digit decrease at the moment. It's -- we were at roughly minus 15 in H1, it's slightly worse now. And we think that it could improve a bit towards the end of the year. But it will not be a good year in the U.K. definitely.

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Michel Delville, SPIE SA - Group CFO [7]

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For the transaction on the gas and offshore, so the sale of the division, we didn't -- we don't disclose the selling price. But what I can tell you is that the transaction itself, as overall, should be neutral in terms of P&L. So it means that we will be close to the book value, so -- should have no impact. Of course, the operation was losing money, and it's still, in the first half year, the loss was close to EUR 5 million. And we expect it to be in the same range in H2 before we sell and we close the deal.

In terms of cash, what we've already said, and we can confirm that, overall, the overall operations, including the sale to Boskalis in the first half is that the overall should be neutral in terms of cash, close to 0. So I guess I answered your question.

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Operator [8]

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The next question comes from the line of Sylvia Barker from JPMorgan.

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Sylvia Pavlova Barker, JP Morgan Chase & Co, Research Division - Analyst [9]

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A couple of questions, please, on growth. Maybe, first of all around the French growth. Could you maybe just comment if there's any kind of large installations flowing through in Q3, whether there's anything else that might be kind of lumpier at all? Or are you just seeing strong growth across?

In Germany, would you just comment, what is the price versus volume balance? And then final question on the U.K. You said you lost around EUR 6 million in the first half. What do you expect the loss to be in the U.K. in the second half of this year?

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Gauthier Louette, SPIE SA - Chairman & CEO [10]

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So regarding France, no [landside] it's -- as you know, we have growth all across the country and all across the sectors of activities, and so we are growing in facilities. We're growing in industry, in information, communication systems and in CityNetworks. And so it's pretty well spread all across the regions and all across the economical sector, so it's a robust growth indeed. And I think we have a really good activity going forward, and we should be looking at a good growth for the whole year in France.

Regarding Germany, we were -- due to the nature of activity, it's very difficult to do a price volume split. It's something that we are unable to do. What we say that we are really defending our margins very well in Germany, and we are on a higher level margin and maintaining it there.

And regarding U.K., yes, we had a loss of minus 6 at the first half. We think that we're going to do better for the year, and due to the type of activity we're performing towards the end of the year and also the actions taken in terms of restructuring, which are very -- happening fast in the U.K. So probably we should be likely a couple of million south of 0 but better than H1.

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Sylvia Pavlova Barker, JP Morgan Chase & Co, Research Division - Analyst [11]

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Sorry, just to clarify, that will be for the full year, you'll be going like 2 million to 3 million?

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Gauthier Louette, SPIE SA - Chairman & CEO [12]

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Yes.

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Sylvia Pavlova Barker, JP Morgan Chase & Co, Research Division - Analyst [13]

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Okay. And the overall restructuring cost that you incurred this year?

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Michel Delville, SPIE SA - Group CFO [14]

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We'll have something around EUR 3 million. That's what we see. That's what we have today. And so I guess you understood that it means that thanks to the restructuring, we will be positive in the second half, but we will not fully catch up. Unfortunately, we'll not fully catch up the loss on the first half.

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Operator [15]

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The next question comes from the line of Nicolas Tabor from MainFirst Bank.

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Nicolas Tabor, MainFirst Bank AG, Research Division - Analyst [16]

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So the first one would be to have some more details on what you mean by amplified cost reductions in the U.K. I remember you were talking about 200 people layoffs, around 10% of the workforce. What is it now? What are the new steps you take to adjust the cost to the new revenue base? And then in terms of the Ziut turnaround, why is it slower than expected? What's new there? And has the growth slowed in Q3 in the Netherlands?

And then my third question would be on the Flamanville EPR contract, should we expect the phasing of the contract to be pushed back to a later date on which you already have some visibility for us to have -- let's say, see the impacts in the modeling?

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Gauthier Louette, SPIE SA - Chairman & CEO [17]

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So regarding U.K., we are looking -- we are mentioning roughly a redundancy of 200 people, and we are looking at an additional 75. Regarding Netherlands, so yes, the turnaround of Ziut is we were to do additional measures in terms of headcount in order to improve the productivity. So sometimes it is replacing people, and sometimes it is reducing the staff as well.

And the other thing we are doing is moving out or not renewing the contracts, which are at a low margin, so quite an amount of negotiation with the customers. So it's sometimes are successful, sometimes are less successful. But we are also trying to -- and this is happening, we are bidding at better prices. And we win some, we lose some as well. So altogether, it has an impact on the top line because we are reducing the top line to come to a better margin.

Other than that, the growth trends in the Netherlands are very good, as industry in the Netherlands is very strong at the moment, and we hold a very strong position there. We have good progress in facilities and infrastructure. There's really a tremendous amount of work happening, be it with the network. Also, we experienced sometimes some volatility in terms of phasing of the contract. Sometimes we are ready to start and the customers has a last-minute issue. It happens in our high-voltage transmission all the time, but all together, the trends are very strong.

And we also -- we did see the FTTH work for optic fiber starting again, and we hold a very good position there. So trends in Netherlands are solid at the moment. We are trimming the Ziut activities.

And with regard to Flamanville, as you know it accounts only for -- it is less than 10% of our nuclear activity and probably nowadays in the range of 7%. So obviously, it's -- our program of work has been affected by the recent development where EDF has postponed the commissioning by 2 years. And we are now working with EDF on reshuffling a number of activities, looking if a number of modifications, which are hold for later can be done now. So it's work in progress right now. And it's difficult to see what the level of activity will be for next year. But clearly, for this year, at the moment, we have a level of activity, which is not decreasing as much as planned at the beginning of the year.

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Nicolas Tabor, MainFirst Bank AG, Research Division - Analyst [18]

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Okay. And if I can ask one last question. Regarding the U.K., I think I remember you were saying that most of your clients were spending the lower end of the framework agreements you have with them. Does that mean that the -- there is very little downside going forward since the acceleration of the decline we saw in Q3 for next year? Or is there some moving forward, so we're not seeing that could mean that we could see some further high level of decline next year?

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Gauthier Louette, SPIE SA - Chairman & CEO [19]

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Well, it's -- we think that we have been really low this year, so we expect it to stabilize. But obviously, there is an element of uncertainty around it. But so far we think -- and we see a number of things happening in data centers with other customers. So there are also a number of customers like the Ministry of Defense in Scotland, et cetera, where, obviously, the activity is more stable. So we think that the decrease of this year should lead to a starting point for next year, which should be stable.

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Operator [20]

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The next question comes from the line of Paul Checketts from Barclays.

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Paul Daniel Alasdair Checketts, Barclays Bank PLC, Research Division - Director [21]

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I've got 3 questions, more around the growth, a slightly longer-term view. On Germany, the narrative is really quite compelling. But you look at the growth, and we're in that low single-digit territory. Is it the lack of people that's depressing it at the minute? And if that is the case, are there any steps you can take to try and improve the situation?

The second is on France. I'm wondering, do you think there's a bit of catch-up by customers who had delayed projects in the period where economic growth was more lackluster. And as you look into maybe 2020, would you expect growth to moderate slightly? And then the last is on the Oil & Gas segment, because there's quite a large number of service companies who are finding the recovery in the sector has lost some momentum, how do you see the outlook, Gauthier?

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Gauthier Louette, SPIE SA - Chairman & CEO [22]

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So regarding Germany, obviously, as you know, we are seeing a good level of margin in Germany. So these prices, the strong economical environment, we stick to our willingness for selectivity. And then there are issues of resources, yes, in areas like in our ICT business, which is doing very well. We could probably do even better if we were finding the right resources.

And in transmission and distribution, it is sometimes hampered by the availability from our subcontractors, also in civil works. So yes, there is an element of resources, and that's why we have stepped up our training programs, our apprenticeship programs. And also we try to be a very attractive employer in Germany as I showed in planning part of it. But altogether, we had a strong growth this year. We are maintaining a similar level of activity and even better. So I think it's quite a good performance in Germany at, again, at good margin and cash conditions. So you remember that we had a growth of 4% in Germany last year. And we are still growing nearly 1% so far.

Regarding France, we have -- as we said, yes, there is some element of catch-up with especially in the industry where after the number of years, which are difficult, as the customers need to improve their assets, and we need to upgrade the technology. And this is what SPIE is all about. We're always helping the customers to upgrade. We're always able to bring them up to speed with the latest technology, so that's exactly what we are doing now.

There are also -- but there is more than catch-up. There are also secure drivers, like the amount of digital work we're having now. Clearly, our customers are increasingly conscious about environmental issues and especially carbon print. And this is something that we do see accelerating in the mines and in the decisions of our customers. So we're looking at the growth, which is really strong in France and in some instance, stronger, by the way, to that of our competitors, which shows that our organization has also played a role in catching that growth.

And looking forward, to talk about 2020, we're in the budgeting side right now, which, as you know, is a bottom-up exercise within SPIE and is based on what all our hundreds of project managers see on the ground. But we think that trends in France and especially when we look at our order book, we still think that we'll have a strong opening position in France for next year.

And regarding Oil & Gas. Well, as you know, we are not embarked on large projects. And what we see now is in brownfield, so this -- which is all that customer spending more on maintenance, asset integrity. There is no more the relentless pressure on price that we had in the past, and so customers are disciplined, but they no longer ask for you to discount. And in fact, has admit they have reached a level where now they have to focus on quality and availability of resources. So we see really good level of activity as we said. And again, we're working on the budget for next year, but we do think that we will be further in positive territory next.

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Operator [23]

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The next question comes from the line of Peter Testa from One Investments.

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Peter Testa, One Investments S.A.G.L. - Analyst [24]

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Three questions, please. The first one is just on Germany, if you could give some understanding inside your continuing operations, are you excluding the disposed or to be disposed operations? What's your hiring growth like? And what sort of engineer hour utilization trend that you've seen year-over-year?

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Gauthier Louette, SPIE SA - Chairman & CEO [25]

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Sorry, I didn't catch the last word.

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Peter Testa, One Investments S.A.G.L. - Analyst [26]

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If you look at the engineering hour utilization trend year-over-year as well.

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Gauthier Louette, SPIE SA - Chairman & CEO [27]

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The utilization trend rate is very high. And we basically -- our people are fully employed, and we're looking for more. So -- and especially in distributions, the level of activities is at record high. And it's a fight for resources, and we sometimes have to fight to avoid the customers' pinch points. So it's no utilization rate is maximum at the moment.

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Peter Testa, One Investments S.A.G.L. - Analyst [28]

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And on the net hiring, can you give some understanding of what the net hiring has been like in the continuing operations year-over-year in Germany?

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Gauthier Louette, SPIE SA - Chairman & CEO [29]

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The net hiring in Germany must be in the range of -- I mean last year, we hired, the net hiring was more than 1,000 people. And I think we'll be -- I mean, the gross hiring was 1,300 people. And we're looking at a similar trend this year. So -- and our workforce in Germany, net is increasing roughly 500, 600 people.

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Peter Testa, One Investments S.A.G.L. - Analyst [30]

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Okay. And then the second question was just on France. You have your municipal elections coming up in early 2020. And I was wondering whether you've seen any sort of negative impact of that prior or expected one early next year. And then looking after that, any positive impact, because I know the municipal are important, local (inaudible)?

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Gauthier Louette, SPIE SA - Chairman & CEO [31]

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As you know, the -- I mean the -- what we do for local authorities, it's around 20% of our activity and give or take, and the municipalities, it come from some part of it. But the effect of the -- I mean, election cycle means that usually there is stronger year before the elections. And then we have a lot of couple of months, and it starts again. And so it also varies whether the same team, which remains in place or not. And you see it has an impact. So altogether, at SPIE level, and with the activities in other sectors and also the fact that a lot of what we do for the municipalities are 2, 3 years contracts, anyway. It doesn't have a major effect on us. And if you look at our record over the last year, you would be hard put to identify the electoral year altogether.

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Peter Testa, One Investments S.A.G.L. - Analyst [32]

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And then the third question, please, is just on France again. You've been working on with a different organizational structure, more vertical organizational structure nationwide. I was wondering if you could give some sort of sense as to what impact do you see that happening on growth rate or -- and/or pipeline as you go into 2020.

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Gauthier Louette, SPIE SA - Chairman & CEO [33]

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I just commented on the growth rate. And I said that we have a good pipeline and our order intake is very satisfying at the moment. And so clearly, the benefits of our organization is that we are able to give more support in our tender team and to have them come up with a better solution and innovative alternative. We also give them more support in terms of execution.

And clearly, we are we are able to escalate issues rapidly. And so it has an impact on the top line in terms of tendering activity, but it has also an impact on the quality of the margin because we're able to give a good support to the local guys.

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Operator [34]

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The next question comes from the line of Laurent Gelebart from Exane.

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Laurent Gelebart, Exane BNP Paribas, Research Division - Financial Analyst & Analyst of French Mid Caps [35]

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Laurent Gelebart from Exane. Just one question on my side. Regarding 5G going forward, can you size the opportunity for you? And do you believe it could become material in France and elsewhere?

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Gauthier Louette, SPIE SA - Chairman & CEO [36]

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It will definitely become material. Now we're looking at a huge amount of spend, and the amount of usage if the 5G is used. So clearly, it will have an impact starting next year for us. And we're really looking at something which will become very strong 2021 onwards. So as you know, SPIE is a major player in telecom activity, and we have been involved since the inception, in 2G, 3G, 4G. We are now a major player in optic fiber, and 5G is the next step.

And so yes, it will be material starting next year, but a very significant 2021. And the other countries are following suit. So clearly, that's something that we'll be involved in the Netherlands and in Germany.

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Operator [37]

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The next question comes from the line of Christophe Chaput from ODDO.

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Christophe Chaput, ODDO BHF Corporate & Markets, Research Division - Analyst [38]

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Christophe Chaput from ODDO, three questions for me. Could you give us some insight about the leverage. I mean, the net-debt-to-EBITDA ratio at the end of 2019, please? The second one is acquisition in 2020. Should we expect as well as 2019 more or less EUR 200 million of sales acquired or could it be a little bit more than that? And the last one is a follow-up on Laurent question. So you gave us, let's say, the 5G confidence, let's say, for 2020 and more than that, '21. Could you remind us for the 4G, for example, what kind of normative sales do you expect -- should you -- do you experience, sorry, during the last year. I don't know if it's comparable, but just kind of a normative sales regarding this technology.

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Michel Delville, SPIE SA - Group CFO [39]

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Good morning, Christophe. I will first answer to the question about the leverage. As you know, we didn't guide for the leverage for this year. We have guided 2.5% ratio for end of 2020. What I can tell you today also, as you know, we don't publish any balance sheet element at quarters. But I can -- what I can say today is that that we are really on track to deliver the 100% cash conversion of EBITA as we do every year. So this is the goal for this year as well.

So in terms of our yearly seasonal pattern, which, as you know, is strong working capital reversal during the second half of the year, I can tell you that we are on track, and that all operational working capital indicators that we use across the group are going in the right direction. So the whole team is focusing on that. And we are confident that we will deliver the 100% cash conversion for this year.

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Gauthier Louette, SPIE SA - Chairman & CEO [40]

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And regarding your question for telecom, the order of magnitude of 4G, and did vary from 1 year to the other, et cetera, but you would be looking at EUR 100 million, EUR 150 million. And optic fiber in France is even higher than that. These are the order of magnitude you would be considering. Regarding 5G, obviously, it will also depend on the rate of deployment, but it's quite a bit of work. It's a new network, basically, whereas in 4G, you would use the existing pylon network. Now you're more looking at the new network, so it's quite a bit of work as well. So there's no reason why the order of magnitude should be dissimilar.

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Christophe Chaput, ODDO BHF Corporate & Markets, Research Division - Analyst [41]

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And regarding acquisition in 2020?

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Gauthier Louette, SPIE SA - Chairman & CEO [42]

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I think we're looking at the usual strong pipeline of acquisition. It also takes the usual time to negotiate with the owners, which are more often are not private entities or families, et cetera. So I think for 2020, EUR 200 million is still a good order of magnitude. And also it varies regarding depending on opportunities and the phasing might also vary, but that's what probably we'll be looking at for next year.

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Operator [43]

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We have no further questions in the queue, so I'll turn the call back to the host.

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Gauthier Louette, SPIE SA - Chairman & CEO [44]

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Well, thanks a lot for your attendance today. And as you see, we had a strong Q3 and really pleased about the progress we are making in France, very pleased about also the good level of activity and margin in Germany, pleased about the oil and gas recovery. So we're definitely able to confirm our guidance for the year. And I think SPIE is well positioned to address the challenges that our customers are assessing now, and we'll be well positioned to help them. Yes. Thanks a lot for your attendance, and have a good day.

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Operator [45]

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Thank you for joining today's call. You may now disconnect your headsets.