Comments for the first half of 2017
In the first half of 2017, the European digital services market showed sustained growth, bolstered by investments in digital and cloud offerings. Sales were strong for Sopra Steria during the period and operating performance is on track to meet full-year targets. Among the highlights was a very clear upturn in business lines that had been generating weak margins and which are now in a position to reach, at a minimum, the profitability objectives set for 2017.
A number of initiatives were launched in the first half and are illustrated by major commercial successes, the expansion of offerings (in both services and solutions), the continued pursuit of an active targeted acquisition policy and the deepening of exchanges with a broad ecosystem of partners. These initiatives are strengthening Sopra Steria’s digital and cloud growth strategy.
Sopra Steria generated revenue of €1,903.2 million in the first half of 2017, representing total growth of 1.3%. Changes in scope had a positive impact of €20.5 million, while currency fluctuations had an adverse impact of €44.5 million, essentially due to the 9.5% drop in the pound-to-euro exchange rate relative to the same period a year earlier. Growth at constant exchange rates and scope was 2.6%. The Group’s operating profit on business activity grew by 5.9% relative to the first half of 2016, to €142.1 million, a margin of 7.5%, up 0.4 percentage points from the previous year.
In France, first-half revenue came to €801.4 million, representing organic growth of 2.1%.
- Business levels at Consulting & Systems Integration (revenue of €01.4 million), held back by particularly negative calendar effects in the second quarter (three fewer working days), generated organic growth of 2.6%. This performance was buoyed by an increase of 7.6% in Consulting. The public sector and aerospace were the best-performing vertical markets. The outlook for the second half is favourable and should prompt an acceleration in growth compared to the first half. With regard to profitability, operating profit on business activity reached €9.1 million, or 9.8% of revenue, thus remaining stable relative to the first half of 2016.
- I2S (Infrastructure & Security Services) generated revenue of €00.0 million, representing negative organic growth of 1.3%. The IT infrastructure management business has successfully refocused on high added-value services (consulting, architecture, cloud computing, etc.), with a clear improvement in profitability and a 3.5% decrease in revenue. Cybersecurity (11% of the entity’s revenue) achieved strong organic growth of 24.6%. Profitability at I2S improved markedly, with an operating margin on business activity of 3.1%, 2.6 percentage points higher than that achieved in the year-earlier period and in line with the roadmap set to achieve the full-year target of 5%.
In the United Kingdom, first-half revenue (€413.0 million) recorded a downturn in organic growth of 5.7%. Exchange rate fluctuations had a negative impact of €5.1 million. Overall, the region posted total revenue growth of -14.6%. Given the transition phase experienced this year by the SSCL joint venture of Sopra Steria with the Cabinet Office, revenue for the region is expected to be lower in 2017 (see the 27 February 2017 press release). In terms of profitability, the United Kingdom achieved an operating margin on business activity of 6.0% in the first half of 2017 (1.3 percentage points lower than in the year-earlier period). This performance reflects additional costs relating to the latest client migration onto SSCL, while the private sector has arrived at the implementation phase of its transformation project.
Revenue for the Other Europe reporting unit rose sharply (11.1% organic growth), reaching €97.8 million. All of the region’s countries saw robust growth, with a special mention for Germany, which confirmed the success of its recovery (12.7% organic growth and an operating margin on business activity greater than 8%). For the reporting unit as a whole, the operating margin on business activity improved strongly by 2.4 percentage points to 6.8%.
Sopra Banking Software generated revenue of €85.8 million, an increase of 16.0%. Revenue growth for this business was also strong at constant scope and exchange rates, rising by 8.0%. This performance was driven primarily by services as well as Cassiopae’s specialist loan products. Over the period, Sopra Banking Software continued to invest in its offerings. Amplitude Up, a new, digital-ready version of its Amplitude product, was released. An innovative digital platform to support the creation of novel ways to enhance the client experience and assist financial players in ensuring compliance with the Payment Services Directive (PSD2) has been announced. Lastly, the development of the Platform product continued, in line with its roadmap. In terms of profitability, given the recognition of research and development expenses in the income statement and the fact that licence sales are concentrated in the second half of the year, the operating margin on business activity came to 3.4% (4.3% at 30 June 2016).
Other Solutions (Human Resource Solutions and Property Management Solutions) posted revenue of €105.1 million in the first half of 2017, equating to organic growth of 3.5%, and an operating margin on business activity of 11.2%, up 2.0 percentage points relative to the first half of 2016. This performance was accompanied by an enrichment of the added value of the offers. Thus, for example, in the field of human resources, interoperability with talent management solutions has been established, and in the field property management, Sopra Steria took an equity stake in La FoncièreNumérique®, a digital platform to better manage and leverage all data relating to digitised property asse
Comments on net profit for the first half of 2017
Profit from recurring operations came to €114.2 million. This includes a €17.0 million expense related to share-based payments (versus €10.2 million in the first half of 2016), as a result of the renewal, in 2017, of the “We Share” employee share ownership plan and of a long-term incentive plan set up for the Group’s main managers.
Operating profit was €102.7 million after a net expense of €11.4 million for other operating income and expenses (compared to a net expense of €10.7 million in first-half 2016), which included €10.1 million in reorganisation and restructuring expenses.
The tax expense was €30.8 million in the half-year period, versus €44.4 million in the first half of 2016, translating to a Group-wide tax rate of 31.8%.
The share of profit of equity-accounted companies (mainly Axway) was €1.0 million in the half-year period (€3.8 million in first-half 2016).
The net profit attributable to the Group was €66.0 million after deducting €0.9 million in respect of minority interests, 22.3% higher than the figure of €54.0 million for the first half of 2016.
Basic earnings per share came to €3.27 (compared with €2.70 in the year-earlier period), representing an increase of 21.1%.ts.
Financial position at 30 June 2017
Sopra Steria’s financial position at 30 June 2017 was robust in terms of both financial ratios and liquidity.
Free cash flow for the first half of the year, which is traditionally a period of net cash outflows due to seasonal effects, amounted to an outflow of €109.0 million.
In the first half, outflows for external growth (changes in scope) amounted to €26.6 million.
Net financial debt was €643.3 million at the end of June 2017, equating to 1.9x EBITDA compared to 2.2x as of end of June 2016 (with the bank covenant stipulating a maximum of 3x).
At 30 June 2017, the Group had €1.5 billion in financing, of which €1.1 billion was available.1 In addition, the maturity of the Group’s syndicated loan was extended by one year, to 6 July 2022.
At 30 June 2017, the Group’s workforce totalled 40,431 people (39,813 at 31 December 2016), with 18.0% working in X-Shore zones.
Targets for 2017
The Group’s targets for the 2017 financial year are confirmed:
- organic revenue growth of between 2% and 3%;
- an operating margin on business activity of around 8.5%;
- free cash flow in excess of €150 million.
Presentation of first-half 2017 results
The results for the first half of 2017 will be presented to financial analysts and investors in French on 28 July 2017 at 9:00 a.m. CET, at the Shangri-La Hotel in Paris.
The presentation may be attended remotely via a bilingual webcast in French and English:
Register for the English language webcast: http://edge.media-server.com/m/p/vy9pw27b/lan/en
Or by phone:
French-language phone number: +33 (0)1 70 77 09 20
English-language phone number: +44 (0)203 367 9454
Practical information about the presentation and webcast can be found in the ‘Investors’ section of the Group’s website: https://www.soprasteria.com
Next financial release
Thursday, 26 October 2017 (before market): publication of Q3 2017 revenue