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Edited Transcript of SPIE.PA earnings conference call or presentation 26-Jul-19 7:00am GMT

Half Year 2019 Spie SA Earnings Call

CERGY-PONTOISE Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Spie SA earnings conference call or presentation Friday, July 26, 2019 at 7:00:00am 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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* Anna Patrice

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Charles-Louis Scotti

Kepler Cheuvreux, Research Division - Research Analyst

* Chirag Vadhia

HSBC, Research Division - Research Analyst

* James Peter Winckler

Jefferies LLC, Research Division - Equity Analyst

* Nicolas Tabor

MainFirst Bank AG, Research Division - Analyst

* Paul Daniel Alasdair Checketts

Barclays Bank PLC, Research Division - Director

* Rory Edward McKenzie

UBS Investment Bank, Research Division - European Support Services 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 Half Year Results Conference Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference is being recorded. (Operator Instructions)

I will now hand you over to your host, Gauthier Louette, Chairman and CEO, to begin today's conference. Thank you.

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

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Good morning, ladies and gentlemen. We are very pleased to share with you our first half 2019 results. They are solid, driven by good momentum in Continental Europe and in Oil & Gas. We posted a strong 3.4% revenue growth, excluding ForEx, with a 3.1% organic growth. Our margins are stable, 4.8%. That's a very good level. And we achieved 4 bolt-on acquisitions to date, with a cumulative full year revenue of EUR 210 million. So we have already achieved our targets for the full year.

We are pleased to see a strong rebound in net income, now coming up positive at EUR 44 million. And very importantly, we decreased our net debt by more than EUR 150 million. So altogether, we're able to confirm our outlook for the full year.

Turning to revenue. Our organic growth was strong at 3.1%, driven by France and the Oil & Gas recovery. France is up 4.8%. It is our best semester since our IPO. In Germany and Central Europe, we are still at 1.9% on a high comparison basis. Oil & Gas and Nuclear confirmed a strong recovery at a growth close to 12%. And in [terms of] Northwestern Europe, we see a slow downturn at minus 0.8%. It is only due to a strong construction in the U.K. We have a positive performance in Belgium and in the Netherlands. So altogether, organic growth for the semester, 3.1%.

Our EBITA reached EUR 156 million, with a stable margin. We have progressive performance in France, in Germany and Central Europe in Oil & Gas and Nuclear, but we had the decrease in Northwestern Europe due only to U.K. being in negative territory, and I will come back to the explanations later in the presentation.

So altogether, our first half is well in line with our full year trajectory of an EBITA margin of at least 6%.

Regarding acquisitions. We booked 4 acquisitions over the first half of the year for a total annual revenue of EUR 210 million. We had announced previously the acquisition of Christof in Austria. And now we're able to complete the acquisition of TELBA in Germany, strengthening our ICS presence in Germany. Pleased also to perform an acquisition in France, with Cimlec, which is enhancing our competencies in the robotic area; and then, just recently Osmo in Germany, an acquisition, which we had been targeting at 3, 4 last year. And due to protracted negotiations, it only came to fruition last week.

So altogether, our full year target of EUR 200 million acquired in the year is already achieved. And I'm very pleased to welcome about 1,000 new skilled employees to SPIE.

So these 4 acquisitions are perfectly in line with our strategic priorities, which we presented during our Capital Market Day last May. Austria, Christof is well positioned in the City Networks area; TELBA in ICS and ICT Technologies; Osmo in the building technology installation; and TELBA and Osmo are reinforcing our presence in Germany, which, as you know, is one of our main goals in terms of the bolt-on acquisitions in the years to come; and Cimlec strengthening our presence in the industry in France. So really pleased with this progress on the acquisition front and really enhancing liquidity of the portfolio of SPIE.

And with this, I will hand over to Michel, who will present our financial results.

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Michel Delville, SPIE SA - Group CFO [3]

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Thank you, Gauthier, and good morning, everyone. As Gauthier already pointed out, SPIE achieved a good performance in the first half of the year. Let's see first the P&L highlights.

So on this chart, comparing the left -- the first and the second column, you see that our revenue increased by 3.7% to EUR 3.2 billion; our EBITA at EUR 156 million. It increased by 4.5%. And the EBITA margin at 4.8% was stable. I will detail these elements in a minute.

Our financial results. You see at 36 -- minus EUR 36.8 million. It was last year at EUR 46 million. So this improvement of EUR 9 million is mostly due to lower interest costs on lower debt and also to the -- to a lower extent to favorable exchange rates impact compared with last year.

Our adjusted net income group share was up 17% to EUR 83 million. And finally, our reported net income was EUR 44 million, while it was negative in H1 last year. I'm sure you remember last year, result included significant restructuring and discontinued operations cost, and this is not the case this year.

For your information, on the right side, you see the IFRS 16 impact. This gives me the opportunity to -- just to highlight that all the numbers that I will comment are excluding IFRS 16 for comparison purpose. It will be easier, but we will show the impact on the P&L and on the balance sheet of the implementation on the new norm.

You can see on the right side that the impact on the P&L are really insignificant. No impact on EBITA. We had simply a limited impact on the financial expense of EUR 2 million and EUR 1.6 million after-tax on the net income, so really insignificant on the P&L.

Let's go now to the revenue analysis. And you can see that we post a good first half revenue growth at 3.4%, excluding ForEx. This was achieved on the back of a robust organic growth, as you see, 3.1%. The impact from acquisition is 0.8%. And we have a slight negative impact of minus 0.4% on the perimeter since the disposal of U.K. overhead-lines services. The impact of the ForEx is 0.3%. So overall, a growth of 3.7%.

Let's look now at our EBITA margin. We achieved 4.8% margin, which is stable compared with the first half of 2018. In France, you see on the left side that we have achieved a good operational performance with 10-basis-point increase, confirming the positive impact of the new organization implemented last year.

In Germany and Central Europe, the full year impact of the synergies delivered last year fueled 20 basis points improvement to 4.4% this first half year.

In Northwestern Europe, the margin has decreased from 2.4% to 1.7% because of lower volumes in the U.K., leading to under-absorption of overheads and thus to a negative margin. Gauthier will come back on this.

And you see that in Oil & Gas and Nuclear, the strong recovery in Oil & Gas helped to reach a 50-basis-point increase from 8% to 8.5%. So overall, an EBITA margin at 4.8%.

Let's look now at the evolution of our working capital at the end of June. So here, the presentation on this chart is in number of days, which is easier to understand. And of course, the working capital was slightly negative, as usual. Due to the seasonality of our business, it's much less negative as at year-end. You see on the right side, we were at minus 32 days at end of December, and we are at minus 7 days of revenue at the end of June. It represents an improvement of 4 days compared with the situation at end of June 2018, where we were at minus 3 days. This 4 days' improvements is mostly explained by an improvement in trade receivables and accrued income. As you know, we pay a lot of attention to the evolution of the working capital and the seasonality we see on our business. We had the usual pattern of a working capital outflow in H1 and then improving in H2, which happens every year.

So let me then take the opportunity to remind you our target of 100% cash conversion for the full year. And you can see on this chart that the magnitude of the inflow needed in H2 to achieve this target and reach a stable working capital in terms of days at year-end is lower than last year.

Last year, we went from minus 3 to minus 32. So an inflow of 29 days in H2 this year. To reach this minus 32, we will need 25 days. So since we are starting from a better position than last year, we are quite confident that we will achieve our objective again this year. And let me then remind you that last year, we achieved 116 cash conversion. This year, we are targeting 100%.

Let's look now at the debt. You see that compared with end of June 2018, our net debt was reduced by more than EUR 150 million, from close to EUR 2 billion to EUR 1.842 billion. These numbers are before IFRS 16 impact. So our leverage is at 3.9% end of June, while it was 4.3% last year in June. So this level reflects the SPIE usual seasonality pattern when you compare with the end of December at -- we were at 3%, but it's consistent with the deleveraging trajectory, which is expected, I remind you, to lead us to a leverage around 2.5% at the end of December 2020.

The group's liquidity remains high at EUR 828 million, which includes EUR 418 million of cash and EUR 410 million of undrawn revolving credit facility.

You see also on the right side the impact of the IFRS 16. So the impact is EUR 349 million of debt, which corresponds to the activation on the asset of the right of use of the lease contracts. So -- but you can see that on the leverage, it has no impact; before or after IFRS 16, the leverage remains at 3.9%.

Looking more in detail now to the variation and to the increase in the net debt, you see between December 2018 and June 2019. So this chart explains the usual seasonality pattern of the debt, with an increase of our working capital and the payment of the dividend in H1.

The number you see, EUR 461 million, represent almost fully the working capital variations, because the movements in provision were insignificant this first half. And as every year, we will register the full reversal of our working capital outflow in H2 and will deliver, as I said, around 100% cash conversion over the full year.

Finally, just as a reminder, we have successfully launched a EUR 600 million bond, a 7-year bond, in June, with a coupon of 2.625%. The bond has been largely oversubscribed. This, by the way, highlights the interest and the confidence of the investors in SPIE and in SPIE business model.

The proceeds have been used to refinance half of our 223 (sic) [2023] term loan, as we can see on this chart. So this has allowed us to increase the average maturity of our debt from 3.8 years to 4.6 years and also to fix a higher portion of our debt too. Well, about half of the debt now is fixed at 53%. The bond has been rated by Standard & Poor's, so BB. This is the same rating that the long-term equity trading we have from S&P. And Moody's has issued a few days ago a note confirming our Ba3 long-term credit rating.

So thank you. I will now hand back to Gauthier for first our business review and (inaudible).

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

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Thank you, Michel. And before looking into our performance by segment, let's have a quick look at a few new customers. At our Investor Day, we did show you the strengths we derived from a very strong relationship with recurring customers, but we also win new customers all the time, and here are a few examples. And you see it's very diverse. It's -- we have people in the energy in Germany; our [aeronautic] in France; Smart City in Poland. And these few examples, they present a variety of technical services we're able to provide and the wide range of customers we're able to support.

You can see on the second page of the example. So a lot of them have a digital content, and it is really in line with the -- our strategy to really move our offerings towards an always higher digital content. And as you can see, you can -- we -- even I have to get new customers in the Oil & Gas area. Obviously, the aim is to transform these new customers into recurring ones. And that is -- a lot has to do with the quality of the services and the quality of the support we bring on to the sites of our customers.

The quality of the relationship with our customers is, indeed, deeply linked with the quality of our employees and support our growth at a time of scarcity of technical skills. We're focused on developing our employee skills all the time. So training is very important; 1 out of 2 SPIE employees received training in 2018. And we also focus on promoting gender equality in a sector that has more difficulties so far to attract women.

So together, we are successful, as we've seen, attracting and retaining talent, and we had 4,400 (sic) [5,400] recruitments in 2018. And as you see, the trend this year is very similar at more than 2,600 by H1 '19; obviously, an attractive workplace.

And it's been a safe workplace. Safety is the number one SPIE's priority, and we are among the best in this industry. We are constantly coming up with new initiatives, such as a mobile safety school, which you can see on the picture. We have several of these trucks touring France and now starting to tour Germany as well. And it's a good way to bring new safety initiatives to our sites, which, as you know, are very vigorous across our geographies.

And just as a reminder, safety can be green as well. We are even recycling our safety hub.

So turning to our performance in France. As we said, this is our best organic growth since the IPO at 4.8%, and we have also a good margin progress. We are really pleased to see the fruits of the major transformation we conducted in France in 2018. It -- as we have just to capture market opportunities, notably, in ICS, in industry, but also in telecom infrastructure, and it is really well received by our customer.

Importantly, our commercial installation revenue is now recurring slightly, while maintaining contract selectivity. So we do not regret the choice of discipline we made in the start of our business.

The strengthening of our operational processes, increased efficiency gain with the new organization has helped us to progress our margins, so about 10 bps, and this is despite an impact of roughly negative 30 bps linked with the new rule of CICE and the Macron bonus, which we paid at the beginning of the year.

And then we'll see the acquisition of Cimlec, which we think Cimlec should benefit from the commercial synergies within our nationwide industry division. So very pleased with the development in France and a very strong first half of the year.

Looking at Germany and Central Europe. We do enjoy a dynamic market environment. Organic growth in Germany was at 1%, on a very high comparison basis. We continue to enjoy particularly good business' levels in Transmission & Distribution Services and, as you know, they play a crucial role in supporting Germany's energy transition, which is in full swing now.

We see an improvement on margins year-on-year and it's the impact of delivering the synergies we obtained in 2018. I mentioned the acquisition of TELBA and Osmo. And again, Germany is a key area for bolt-on acquisition in the future. And also, we are very present in the market of e-mobility. It is a new market in Germany. It is emerging, but it is emerging rapidly.

Pleased also with the progress in Central Europe with solid growth and driven this [semester] by our Transmission & Distribution Services in Hungary, but we have also a very robust business in Poland. And then we increased our footprint in Austria. And we should not forget to mention Switzerland. We see a strong profitable growth and a good momentum in all divisions. So really, Switzerland is well poised now for further growth, and it will be a point of interest in the years to come.

So altogether, progress of the margin; in Germany, progress of the turnover, so a good momentum in Germany and Central Europe.

North-Western Europe. Well, we see a revenue decline of 1.8 -- of 0.8%. Clearly, we were hampered by adverse market conditions in the U.K.; while Netherlands and Belgium recorded a solid performance and around 3% organic growth.

So U.K., clearly, this Brexit here is tough. Customer decisions are on hold in many instances. Additional work on base contracts is on a low level as well in our Facilities business. So we have an under-absorption of our overhead and it brings our margin in negative territory. We are acting very quickly. We are adapting structures as we speak, and we have implemented action plans to restore the performance, and we are convinced that we will see the impact as soon as H2 this year.

Regarding Netherlands, we have a good momentum, similar to the past quarters. Revenue growth is driven by the energy transition, and we see a lot of spend in upgrading the electrical grid. As the wet infrastructure segments where SPIE is the market leader in the Netherlands is also very strong with the investment being scaled up and very positive new news. We see the optic fiber rollout definitely kicking off. So it will contribute this year, and it's also a good prospect for 2020.

The former Ziut, now called the SPIE Infratechniek, is still dilutive. We have stepped up the turnaround process, increased the cost savings, onboarded the new management. And what is very pleasing is we start to gain now new contracts at better prices, which was really in line with our aims.

Regarding Belgium, a robust performance, dynamic market trends in infrastructure, and industry remaining very solid. So we have a good growth. We have solid margins. And as you know, with the acquisition of Systemat last year, we have now an ICS division, which plays a significant role in the ICS market in Belgium.

Turning to Oil & Gas and Nuclear, so really a strong profitable growth in H1 2019. In Oil & Gas, the growth is in excess of 15% for the first semester, while leveraging on our strong position in West Africa, with new contract wins among a tender activity which is really strong at the moment. As you see, the organic growth is expected to moderate in H2 as the comparison basis will be much higher.

And we still see progress on margins due to we see a better amortization of our local overheads. Business servicing, the prices are resisting very well at the moment.

And in Nuclear Services, a very solid performance for the first half of the year. We are long-term partners to EDF, and I think that really our position is strengthening all the time. H2 will be lower due to the ramp down of the Flamanville EPR contract. So we expect a small revenue contraction for the whole year so far.

And we'll see the heat wave we just suffered is there to remind us that we do need low carbon energy.

Now to conclude and thanks to our good start to the year, we confirm our full year outlook. Our acquisitions are already ahead. We're very confident, as Michel said, for a cash conversion at 100%. And we are well poised to deleverage further towards our 2020 objectives, around 2.5x.

So thank you for your attention. And with Michel, we'll be pleased to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes in from the line of Sylvia Barker calling from JP Morgan.

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Sylvia Pavlova Barker, JP Morgan Chase & Co, Research Division - Analyst [2]

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Two questions, please. First of all, on the U.K. You talk about continuing to restructure the business and improve that. Can you just talk about the amount of restructuring cost that you might incur on that? Or alternatively, would you actually be willing to perhaps close that business down? It doesn't seem like it's a business that you'd be able to necessarily sell quickly, and perhaps, it's a difficult environment.

Question number two, just on Oil, Gas and Nuclear. You've said that Nuclear might actually be down a little bit for the full year. Could you just kind of clarify where that was running in the first half? And just remind us the margin difference between the 2 businesses, please?

And then finally, just on France, on the organic growth. So you've mentioned that commercial installation is recovering. Is that actually -- was that actually growing in the second quarter? And could we expect that that's actually a positive contributor in the second half?

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

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Yes. So regarding U.K., we are looking at restructuring cost in the range of EUR 2 million. And obviously, the…

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Michel Delville, SPIE SA - Group CFO [4]

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They have been booked in H1.

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Gauthier Louette, SPIE SA - Chairman & CEO [5]

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They are booked in the results in H1, and the cash outflow will have started and will be in H2. We are not looking at closing down the business. We have divisions which are performing decently and clearly, on a lower turnover. Now what we're doing is taking a very, very stern look at our central overheads. But altogether, the operational units are trading in difficult environment, but we have a good range of customers, and we do not plan to let them down and close down the business.

Regarding the Nuclear business, yes, we think that we could have a small decrease for the whole year and again, it's linked on the -- to the ramp down of Flamanville. Well, we're still working on Flamanville and EDF has announced this morning that the commissioning of the plant will now be postponed to 2022. So it remains to see what sort of impact it will have on our business in the months or years to come for this plant. And because possibly it could mean that then the number of modifications could be done before 2022. So how to forecast at the moment, cautious forecast, some negative impact for the growth in Nuclear business this year.

Regarding margins in Oil & Gas and Nuclear, as we've said in the past and it remains true, they're not too dissimilar from one part to the other and as you see at a very good [level].

And pertaining to the France commercial installation, yes, we could see maybe, maybe a small positive growth for the year. But again, it's not the main target for commercialization. The main target is to continue -- restore the margin, and I think we're doing well in this regard at the moment.

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Sylvia Pavlova Barker, JP Morgan Chase & Co, Research Division - Analyst [6]

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And sorry, just a follow-up on the U.K. Could you actually give us numbers around kind of how much it's lost and what the revenue decline actually was in the second quarter?

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Gauthier Louette, SPIE SA - Chairman & CEO [7]

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Well, in terms of loss, we're talking of low single digit. And in terms of growth, it's around 10%, yes.

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Sylvia Pavlova Barker, JP Morgan Chase & Co, Research Division - Analyst [8]

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For the half?

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Gauthier Louette, SPIE SA - Chairman & CEO [9]

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For the half, yes.

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Operator [10]

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The next question comes in from the line of Chirag Vadhia calling from HSBC.

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Chirag Vadhia, HSBC, Research Division - Research Analyst [11]

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On the U.K., where there's been some Brexit uncertainty and margins have started to come into negative territories, could you give some color on what conversations you're having on the ground?

And secondly, for the Netherlands, with the new management team in SPIE Infratechniek, when do you expect to see the margins turn accretive?

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

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Regarding U.K., to give you a few -- some flavor of what we're experiencing at the moment. We have major customers in data centers. As you know, it's quite a strong point of our business in the U.K. And they have a strong pipeline of investments planned. With the uncertainty around Brexit, tariff, customs, cost, et cetera, these projects are on hold at the moment. They are all ready, and know they have negotiated everything. Just now for pushing the button, it doesn't happen now. So that's -- and last -- same quarter last time, we are very -- last year, we are very active in the data center activity. This year it's very low. So this is an example.

Also example, we have a major customer in the aeronautic industry. And the first half of the year was, again, very, very slow. Part of it is Brexit. Part of it is internal issues. They're telling us that they will be more active in the second half of the year. So let's just hope that it will happen.

And more generally, in our Facilities business and in other areas of the business, we see customers very much on the -- when to expect anything right now and very, very hesitant to stand. So that's what we are experiencing at the moment in the U.K.

And regarding Netherlands, I think we -- the margins in the Netherlands are in the area of 5%, so -- except Infratechniek. So it is some time before it's going to come relative. And our -- my aim would be that in -- now in the 2 years to come, that we'll come to the margin of the balance of the business in the Netherlands, and the balance of the business is faring very well at the moment.

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Operator [13]

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The next question comes in from the line of Rory McKenzie calling from UBS.

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Rory Edward McKenzie, UBS Investment Bank, Research Division - European Support Services Analyst [14]

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Two for me, please. Firstly, on the French margin, which saw a small improvement in H1. Looking at the bigger picture, how much of the decline over the past few years do you think you can kind of regain? I know some of it was, of course, CICE, some of it was acquisition mix. But can you kind of remind us why that margin fell? And how much of that you could then hope to kind of reclaim over the next -- in the coming years?

And then, again, secondly, sorry to dwell on the U.K., but ever since you acquired Matthew Hall in 2007, you've been restructuring contracts, repositioning the business. I understand the market is still very weak. But what's still not working in your own internal operations? And what's the new approach going to be? Because you spent, obviously, over a decade trying to get that U.K. business in the right shape, so what are you going to change now?

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Gauthier Louette, SPIE SA - Chairman & CEO [15]

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So regarding France, I think that if we were to discount the CICE sector, I think we'd pretty much be back to the peak, and we enjoyed in the past. So I think the new organization is working really well, and that's where we are, which also explain a very good performance in terms of cash as well.

And regarding U.K., yes, you do rub it in, Rory, right? It's been a tough time over all these years. And I think our U.K. business is still small. And compared to the U.K. economy, the U.K. market is very fragmented. So basically, structurally, the margins are lower than what we see in other geographies in Continental Europe, and we have to deal with that. We have to really concentrate on the right type of customers, which we have really improved a lot on the last -- in the last years. And at the moment, the only thing we can do is we stay [stationary] and manage the weather, and that's what we're doing.

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Rory Edward McKenzie, UBS Investment Bank, Research Division - European Support Services Analyst [16]

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Do you think -- I mean the comments were about your kind of low market share relative to other regions, I mean, do you think that try and grow scale is the answer? Or do you want to restructure the business first before you look for further acquisitions in the U.K.?

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

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Well, right now -- and again, right now, it's a time for restructuring and adapting to the conditions. We are constantly working to achieving a more solid base in the U.K. and then there's the issue of consolidation of the market. And sometime, you have to decide what side of consolidation you want to be.

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Operator [18]

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

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James Peter Winckler, Jefferies LLC, Research Division - Equity Analyst [19]

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Just a couple for me. One was on the Nuclear and specifically with Flamanville. Wondering if you can quantify specifically how big that contract is, just to get a sense of sort of how that's moving in the second half.

Secondly, wondering if you could let us know where at the half year the factoring sits, specifically the non-recourse securitization in Germany, and how that's changed year-over-year compared to last year.

And then, I think that was it. No, sorry, there was one more just thinking we've had some comments from other companies operating in France saying that they're having upward pressure on the full year tax rate for this year because of a reversal of this corporate tax rate decline as of this year, retrospective back to the beginning of the year. So wondering if that increases your expectations for tax of this year as well?

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Gauthier Louette, SPIE SA - Chairman & CEO [20]

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So regarding Flamanville, we do not disclose numbers on specific contracts. And for the other question, I will hand over to Michel.

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Michel Delville, SPIE SA - Group CFO [21]

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Yes. Concerning the securitization program in Germany, we were quite at the same levels in last year, around EUR 70 million, and also same level at December, so no significant movement there.

Concerning the tax rate, of course, we have normative -- I would say normative tax rate of around 30%. In this first half, you have the CVAE. This is a French tax on added value on the enterprises that weights around EUR 9 million. So for the full year, we have the same type of guidance in terms of the normative tax rate of 30%. Always difficult to predict, because on the numbers, you have also the contractual movement on the deferred tax, so remember last year, we had also some positive news from a tax audit, and we could release provisions. So I think we cannot do better than advice on a normative tax rate of 30%, and then adding the famous French CVAE tax.

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James Peter Winckler, Jefferies LLC, Research Division - Equity Analyst [22]

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Okay. And then lastly, just, I mean, the revenue guidance, given the performance of the first half, the revenue guidance of 2.5% to 4.5% looks quite conservative. Are you -- is that purely reflective of what you talked about in terms of the expected moderation of Oil & Gas and the perhaps slight contraction in Nuclear? Or is there anything else you'd flag within the other divisions as well that might contribute to you maintaining that guidance?

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Gauthier Louette, SPIE SA - Chairman & CEO [23]

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No, I think you're right. The comparison in Oil & Gas will be tougher. We mentioned Nuclear. And we'll see. We remain cautious on the U.K. And thus, we have no reason to change our guidance.

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Operator [24]

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

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Nicolas Tabor, MainFirst Bank AG, Research Division - Analyst [25]

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First question would be on the nature of the U.K. action plan, if that would be possible. What do you intend to do push up the margins? And what level of margin recovery could we expect over H2 and over the next years? And over the full year, should the decline mean the same magnitude of what we've seen in H1? So that's the first one.

Then I had another question on disposals. Where are you at with the disposals? And could we expect some positive cash impacts over the full year?

I also saw that you had some EUR 17 million in restructuring cash upflow in H1. Could we have some detail about this?

And then could you give us regarding the top line guidance, some organic growth guidance, let's say, what do you expect, because H1 was quite strong? You said that H2 had so these headwinds in U.K. and a strong comparison basis in Oil & Gas. But what can we expect over the full year in terms of organic growth, to have somewhat of an idea of the breakdown?

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Gauthier Louette, SPIE SA - Chairman & CEO [26]

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So regarding the U.K., as we've said, we are launching -- we have launched fairly a very strong restructuring plan right now. So it's decreasing the overhead, and it is increasing also the productivity. So that's what we are working at right now. As I said, we hope that we see some better news in some parts of the business in the second half of the year. And -- but again, we have to remain cautious altogether for U.K. for the year, and that's where we are. So we think we should see better results for the full year than for the first half. That's what we are returning now.

Regarding disposals, it's progressing in Germany. As you know, we have completed the sale of our nearshore cabling activities. And we are now working on the sale of our construction activity in the Gas division in Germany. It's -- the process is following its path, and we were now at the stage of receiving nonbinding offers. It's early to say how it will end up, and certainly, I'm not projecting any cash valuation right now. We think there will be some, but it's hard to say now how much. So that's where we are.

Regarding restructuring, maybe, Michel, do you want to comment on...

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Michel Delville, SPIE SA - Group CFO [27]

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Yes. On the restructuring, we are targeting more or less EUR 15 million; and on discontinued, we should have a neutral impact over the full year. So that's what we are targeting.

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Gauthier Louette, SPIE SA - Chairman & CEO [28]

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And finally, on the top line guidance, no, we do not guide specifically on organic growth. So we stick to our overall growth guidance, which is at 2.5% to 4.5%, including bolt-on. So that's where we are at the moment, and we stick to that.

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Nicolas Tabor, MainFirst Bank AG, Research Division - Analyst [29]

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Sorry, for the EUR 15 million in restructuring, where are you meaning at, in the P&L or in the cash flow? Because in the cash flow, you were disclosing EUR 17.2 million restructuring and discontinued operation, excluding IFRS 16. So I just wanted to be sure what it was corresponding to, and what the full year impact would be?

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Gauthier Louette, SPIE SA - Chairman & CEO [30]

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So we're talking about cash outflow, okay? The pure restructuring is expected around EUR 15 million, and then impact from discontinue, we did not guide that. We did not give any guidance, but what we think, we should be neutral G&O, Gas & Offshore.

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Operator [31]

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And your next question comes in from the line of Paul Checketts calling from Barclays Capital.

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Paul Daniel Alasdair Checketts, Barclays Bank PLC, Research Division - Director [32]

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I've got 3 questions, please. Can I just ask first about France and Germany, because you've posted really good growth in the first half? But when we look at some of the broader economic data, it's weakened quite markedly. How are you feeling about the growth outlook going into second half and into next year given some of the aspects of cyclicality in the group?

And then the second question is about the -- your expectations for margins in Germany and France second half, but more about the medium term and where you think they can get to, because you are posting very good margins there, higher than the competition. So I'd be interested in your thoughts.

And then the last one is would you be able to give us your expectation for interest in the full year?

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

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So regarding growth in France and in Germany, we -- in France, we see a very good momentum at the moment. We see public authority is spending. We see telecom infrastructure and notably fiber, it's a high level of spend. Industrial customers are faring well. And as we've said, we've managed to find some decent quality work in commercial installations sector. So we are -- well, we are in a good trend in France and customers are confident.

And regarding Germany, well, you must remember that in Germany, we are very little -- we have a very small presence in the industrial sector. And we hear that the industrial sector is slowing down. Frankly, what we absolutely see, yet to be seen. The others parts of the business, they're very active really, it's -- customers are spending on their offices, they're spending on the ICT networks, they are spending on their energy-saving stations. We see the Transmission & Distribution business is strong. So we are focusing on margin, but we are really -- we see a good push from our customers at the moment.

And to the point, as we said, that technical resources are scarce and, clearly, it has some -- it covers some programs to translate that to people, but it also helps us because customers are fairly worried and changing their suppliers, replacing us with somebody else because they know that everybody will have trouble funding resources. So it's more helping us than hampering us at the moment. And so altogether, we do see a good momentum in Germany, and we expect a decent year in terms of growth in Germany.

Then going forward, regarding growth in the years to come, well, I can only repeat that our fundamental drivers are good. Everything which has to do with the green economy, with digital transformation, these are very strong drivers, and we are at the heart of it. So no real worry in this regard.

And finally, regarding margins, if we are at a high level in the industry, so for first port of call is to certainly maintain the margin with this -- at this high level and maybe improve them somewhat and that we see it could be on the slightly incremental considering the level where we are already.

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Michel Delville, SPIE SA - Group CFO [34]

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Concerning the interest charge for the full year, I think we should be around, let's say, 60-ish, EUR 62 million interest cost. You need also to factor the IFRS 16 impact, which is noncash, but will have appear on the P&L since we have to book a charge on the lease contracts. So EUR 60 million is the portion of the cost that is supposed to be the interest cost of the contracts, or 1-5 million. So overall, if you point to, say, EUR 67 million, you should be okay for the full year.

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Paul Daniel Alasdair Checketts, Barclays Bank PLC, Research Division - Director [35]

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And other noncash interest?

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Michel Delville, SPIE SA - Group CFO [36]

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Yes. The IFRS 16 is a noncash interest. So -- I didn't get your question?

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Paul Daniel Alasdair Checketts, Barclays Bank PLC, Research Division - Director [37]

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There are some other aspects of interest costs that are in addition to IFRS 16 that are noncash, are there?

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Michel Delville, SPIE SA - Group CFO [38]

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Yes, it's about EUR 8 million, yes.

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Operator [39]

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The next question comes in from the line of Anna Patrice calling from Berenberg.

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Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [40]

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Two questions from my side. First, on the M&A, please. You have guided it roughly EUR 200 million of annualized sales to be acquired this year, and you're already done with the service. How is the M&A pipeline looks like? Will the leverage prevent you from doing M&A? And should we expect more M&A in the second half of the year?

My second question is a follow-up on France and Germany. The way you were talking about the momentum in both countries, it seems that everything is going quite well, but then we see quite a stark difference between the French organic growth and German organic growth. In the second half, Germany will have much easier comparison basis. So would you expect then some of the organic growth to accelerate? Because the way you were speaking about it, it seems like there's lots of things going on, that you should also have good volume and pricing momentum. So what should be the outlook then for you in Germany?

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Gauthier Louette, SPIE SA - Chairman & CEO [41]

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Thank you. So regarding the M&A, we had -- we have a good pipeline, absolutely. As I told you and we have said that in the past, we had a lower year last because some of the acquisitions we were planning in Germany had been postponed, and they did happen to finally come to fruition this year. So that's also explained why we are more biased towards the first half of the year this year. And we have a good pipeline. We are looking at a number of opportunities, as always and in all our geographies, but we see there is no pressure and we remain disciplined on pricing.

The leverage issue, that's more we are very cautious about leverage. With our level of leverage on one side and the multiple we pay for the acquisition, the impact on leverage per se is probably on the second digit. So it's not really concerned. However, we also look at the overall level of net debt.

And clearly, integration is always an area of important focus. So we don't want to necessarily overburden our management teams with integration. So again, looking very carefully at good opportunities. No pressure.

Regarding organic growth, we are -- in France, we're coming back from several years of negative growth. And then our new organization is helping a lot, and we are in a better environment in France, clearly, this year.

In Germany, we were -- we had a very strong growth also in the past years. So as you see, we are not starting from the same point. And then the quarterly organic growth is fairly hard to predict. I know we have not been mentioning that our quarterly growth in France was 6.2% in Q2. And we do not tend to boast or worry too much about the quarterly organic growth. It's always a bit hard to predict.

So -- and then finally, for Germany, as I said, resources are quite scarce. I think it's a good opportunity as we do to work on pricing and margin level.

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Operator [42]

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(Operator Instructions) And the next question comes in from the line of Charles Scotti calling from Kepler.

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Charles-Louis Scotti, Kepler Cheuvreux, Research Division - Research Analyst [43]

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Three questions, if I may. The first one, can you give us the average profitability of the 4 bolt-on M&A you completed this year? Is there any of the 4 deals that has a lower or weaker or even negative profitability like Ziut last year?

My second question, if I'm not mistaken, the organic sales growth was plus 6% in France in Q2. Is there any one-off in this very strong figure?

And my last question, can you confirm that the net impact of IFRS 16 or net debt is EUR 350 million and on EBITDA, EUR 87 million on a full year basis?

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

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Thank you. So regarding the acquisition, well, obviously, we do not disclose the exact profitability, but we are not in a recovery or turnaround case in none of them. All of them are good companies, well established on their markets and with decent margins.

Regarding growth in Q2. In France, well, first, there are no one-offs. So there is an easier comparison basis. And as we say, we are -- across the board, we're enjoying a good level of activities.

And regarding IFRS, I think I will cautiously hand over to Michel.

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Michel Delville, SPIE SA - Group CFO [45]

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Yes. You are perfectly right. So the impact on the net debt is EUR 349 million, and the impact on the financial result is 2.2% and on the net income is 1.5% negative, of course. You -- by the way, you have -- on the presentation, you can go to Page 30, where we have the full impact on IFRS 16 on the P&L and on the debt and the leverage. So it's on Page 30.

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Operator [46]

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We have no further questions coming through. So I shall hand it back over to yourself, Mr. Louette, for any closing remarks.

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Gauthier Louette, SPIE SA - Chairman & CEO [47]

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Well, thank you very much, too, for attending this conference. So we have a good first half of the year, and we'll be working very hard to deliver on our guidance for the second half. And we are quite pleased really with the performance of the company and the positioning on the market, which enjoys very strong long-term drivers.

Thanks a lot, and have a good day.

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Michel Delville, SPIE SA - Group CFO [48]

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Thank you.

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Operator [49]

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