Sopra Steria: 2016 Full-year results
Comments on business activity and operating performance in financial year 2016
In financial year 2016, Sopra Steria exceeded its growth, profitability and cash flow targets, delivering a solid operating performance that saw the Group return to its historical performance standards.
As such, the Group’s 2016 performance highlights the relevance and success of the tie-up between Sopra and Steria. It also reflects strategic developments initiated by the Group: driving up the value of its offerings through consulting and solutions, strengthening the vertical approach and close client relationship, and stepping up development in the digital segment, which proved particularly buoyant.
Sopra Steria generated 2016 revenue of €3,741.3 million, reflecting buoyant organic growth of 5.2%. Currency fluctuations had an adverse impact of -€130.3 million, mainly due to the drop in the British pound vs. Euro relative to 2015. Meanwhile, changes in scope had a positive impact of €103.9 million. Overall, Group revenue grew by 4.4% in 2016.
The Group’s operating profit on business activity grew by 22.6% relative to 2015, to €301.1 million, a margin of 8.0%, up 1.2 percentage points relative to the previous year.
In France, 2016 revenue came in at €1,528.1 million, equating to organic growth of 6.7% and total growth of 12.0%.
In Consulting & Systems Integration, the Group substantially consolidated its leading position, continuing to win market share from its competitors thanks to very strong momentum: revenue grew by 8.0% on an organic basis to €1,327.4 million, driven by key accounts (up 10%) and consulting services (up 17%) which now account for 12% of total business. The best-performing sectors were defence, aerospace and transport. Strong business growth was coupled with higher profitability, while the Group invested significantly in training (under the New Way programme launched in 2016): the operating margin on business activity came in at 9.0%, compared with 8.7% the previous year.
I2S (Infrastructure & Security Services) posted revenue of €200.6 million. The IT infrastructure management business, which accounts for 90% of the entity’s revenue, continued to refocus on higher-added-value services. This resulted in a slight organic decrease in revenue (down 1.3%) and the confirmation of the recovery in profitability begun two years ago. All in all, I2S’s operating margin increased by 1.9 percentage points relative to 2015, to 2.2%. This performance has enabled the Group to maintain a target operating margin on business activity of almost 5% for 2017, as set in 2015.
In the United Kingdom, Brexit had no material impact on business in the financial year. However, the British pound fell by an average of 11.4% against the euro, generating a translation loss of €117.5 million. Full-year revenue of €927.9 million was down 11.0% relative to 2015, however, at constant exchange rates and scope, revenue was stable (+0.4%). Public sector business grew by 2.0%. The private sector business was reorganised, resulting in the beginnings of an improvement. As regards profitability, the region’s operating margin on business activity increased by 0.7 percentage points relative to 2015, reaching 8.0%.
The Other Europe region’s performance in 2016 reflected the success of the recovery plan put in place two years ago, particularly in Germany, where the transformation was a clear success. The region generated revenue of €728.1 million, equating to organic growth of 5.8%. Nearly all countries posted growth, with Spain, Benelux and Norway particularly buoyant. Meanwhile, the region’s profitability more than doubled relative to 2015. The operating margin on business activity came in at 5.7%, compared with 2.7% the previous year, mainly thanks to a very strong improvement in Germany, which returned to profit (delivering an operating margin on business activity of 5.7%, compared with 0% in 2015).
For Sopra Banking Software, 2016 was a year of significant development and consolidation. Revenue grew by 24.3% (of which 11.7% organic) to €350.9 million. Significant new ground was gained in specialist loans (with the acquisition of Cassiopae in April 2016) and payments (with Sopra Banking Platform for Payments launched for Transactis). Significant milestones were achieved on the product roadmaps, notably on ‘Platform’, with the delivery of the account management module. A number of major new contracts were also won on ‘Platform’ (seven new clients) and demand remained strong on ‘Amplitude’ (with 13 new clients and 23 go-live decisions). Lastly, investment increased, with research and development expenses (recognised in the P&L) up €14 million, accounting for 27% of revenue. Against this backdrop, the operating margin on business activity held steady relative to 2015, coming in at 9.1%.
Other Solutions (Human Resource Solutions and Property Management Solutions) posted 2016 revenue of €206.4 million, equating to organic growth of 3.7%. Human Resource Solutions benefited from strong momentum in the second half of the year after delays signing contracts in the first half. Meanwhile, Property Management Solutions delivered sustained growth throughout the year. The reporting unit’s profitability increased sharply, with an operating margin on business activity of 14.2% (compared with 11.6% in 2015).
Comments on 2016 net profit
Profit from recurring operations came in at €267.8 million equating to growth of 19.1%. This includes a €12.1 million expense related to share-based payments mainly due to the implementation, in the first half of 2016, of an employee share ownership plan involving both purchases of shares by employees and matching employer contributions.
Operating profit came in at €240.2 million, equating to growth of 57.4%, after other net operating income and expenses of -€27.6 million. These included €22.9 million in reorganisation and restructuring expenses, down significantly compared to the €67.2 million recorded in 2015.
The tax expense for the year totalled €80.9 million, compared with €47.2 million in 2015, giving an effective tax rate of 35.8%, similar to the 2015 rate.
The share of profit of equity-accounted companies (mainly Axway) was €10.8 million.
After taking into account €5.4 million attributable to minority interests, net profit attributable to the Group increased by 78.2% to €150.4 million, equivalent to 4.0% of revenue (compared with 2.4% of revenue to 31 December 2015).
Basic earnings per share increased 75.6% to €7.50 (compared with €4.27 in 2015).
Proposed dividend in respect of financial year 2016
At the next Annual General Meeting of Shareholders, Sopra Steria will propose the payment of a dividend2 of €2.20 per share (€1.70 per share in respect of financial year 2015).
Financial position at 31 December 2016
Sopra Steria’s financial position at 31 December 2016 was robust in terms of both financial ratios and liquidity.
Free cash flow improved sharply relative to 2015 (€150.6 million vs. €49.3 million).
Net financial debt stood at €506.0 million at end 2016, down €24.8 million relative to end 2015 and equating to 1.47x EBITDA (with the bank covenant stipulating a maximum of 3x).
At 31 December 2016, the Group had total financing of €1.5 billion, of which €1.1 billion was available3. The Group’s bank facilities were renegotiated on 7 July 2016 for a period of five years (with extensions possible to 2022 and 2023).
At 31 December 2016, the Group had a total workforce of 39,813 people (compared with 38,450 at 31 December 2015), with 17.6% working in X-Shore zones.
In 2017, a number of European countries will experience an adverse calendar effect of two to three days.
In the United Kingdom, successful completion of the first phase of development of the SSCL joint venture, consolidated at 100%, opens new growth opportunities for this activity in the medium term. In 2017, however, the end of the initial transformation period will provoke a reduction in business volume associated with the transformation phase. As such, SSCL is likely to see its revenue decline in 2017 by around £45 million year on year.
Against this backdrop, the Group has set itself the following targets for financial year 2017:
- 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
2016 results presentation
The 2016 annual results will be presented to analysts and investors in French at the Shangri-La Hotel at 9:00 a.m. CET on 27 February 2017.
The presentation may be attended remotely via a bilingual webcast in French and English:
- Register for the French language webcast
- Register for the English language webcast
Or by telephone:
- 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.
Next financial release
Thursday, 27 April 2017 (before market open): first quarter 2017 revenue.
- Audit procedures have been carried out on the financial statements. The Statutory Auditors report is in the process of being issued
- Annual General Meeting of Shareholders scheduled for 13 June 2017. The ex-dividend date will be 3 July 2017, and the dividend will be payable as from 5 July 2017
- Assuming a constant amount of commercial paper (€302.7m at 31 December 2016) and overdrafts