Market Overview

Sopra Steria Group: First Half 2018 in Line with Forecasts

Share:
  • Revenue grew by 6.5%, with organic growth at 5.3%1
  • Operating margin on business activity was 6.6% (7.5% in H1 2017) in
    line with budget, and net profit attributable to the Group came to
    €38.4 million (€65.9 million in H1 2017) owing to stronger seasonal
    effects than in 2017
  • EBITDA rose 5.0%, and free cash flow improved by €32 million (to an
    outflow of €77 million
    2 from an outflow
    of €109 million in H1 2017), in line with the annual targets
  • Sopra Banking Software, the United Kingdom and digital were the top
    investment priorities, as planned

Regulatory News:

At its meeting on 26 July 2018 chaired by Pierre Pasquier, Sopra
Steria's
Board of Directors (Paris:SOP) approved the financial
statements for the first half of 2018; the Statutory Auditors have
conducted a limited review of these financial statements.

         
Sopra Steria: 2018 Half-year results                    
       

H1 2018
IFRS 15

 

H1 2017
IFRS 15

Key income statement items

Revenue €m

2,014.0

1,891.5

Total growth

+ 6.5%

Organic growth

+ 5.3%

 
Operating profit on business activity €m / %

132.8

6.6%

141.6

7.5%

Profit from recurring operations €m / %

99.2

4.9%

113.7

6.0%

Operating profit €m / %

80.0

4.0%

102.3

5.4%

Net profit attributable to the Group €m / %

38.4

1.9%

65.9

3.5%

 
Weighted average number of shares in issue excl. treasury shares m

20.16

20.20

Basic earnings per share

1.90

3.26

Recurring earnings per share

2.60

3.65

                     
Key balance sheet items
        30/06/18       30/06/17    
Net financial debt €m

662.4

643.3

Equity attributable to the Group   €m  

1,261.7

     

1,082.5

   
 

Comments on H1 2018 business activity and operating performance (IFRS
15)

In 2017, Sopra Steria achieved the targets that were set when the merger
was completed in 2015 and the company has now embarked on the next phase
of development, aimed at making its business model more robust by 2020.
The goal is to raise operating margin on business activity to around 10%
by 2020.

Consulting, software and offer strengthening are the main strategic
priorities for the 2018-2020 period:

  • Substantially expand a consulting business that possesses both digital
    expertise and business expertise to make it a force to be reckoned
    with, contributing 15% of total revenue
  • Strengthen the Group's position in software, with banking software the
    priority, so that it generates 20% of total revenue
  • Strengthen digital components of the offerings and accelerate the roll
    out of end-to-end solutions more extensively for the Group's
    strategically important key clients

Achieving this business model by 2020 requires investments in human
resources, offerings, and research and development. The full breadth of
the Group's businesses will be affected. In 2018, Sopra Banking
Software, the United Kingdom and digital are the top investment
priorities.

Sopra Steria generated revenue of €2,014.0 million in the first
half of 2018
amid vibrant market conditions, representing total
growth of 6.5%. Changes in scope had a positive impact of €38.7 million,
while currency fluctuations had a negative impact of €16.9 million. At
constant scope and exchange rates, revenue grew 5.3%. As a result of
stronger seasonal effects than in 2017, operating profit on business
activity was €132.8 million, or a margin of 6.6% (7.5% in H1 2017).
EBITDA totalled €155.7 million, up 5.0% from €148.3 million in the same
period of the previous year.

In France, revenue came to €849.1 million, representing growth of
5.9%. Organic growth was 3.9% thanks to brisk business activity in the
second quarter. Business was driven by consulting, up more than 14%, and
by cybersecurity, up more than 30%. The best-performing vertical markets
during the first half were banking and insurance, the public sector,
defence, aeronautics and automotive. Operating profit on business
activity rose 5.3% to €76 million. The operating margin of 9.0%,
identical to that recorded in the first half of 2017, reflects the
improved profitability of the IT infrastructure management business and
unfavourable calendar effects, plus investments expenses in digital and
a shift toward higher value offerings.

In the United Kingdom, revenue posted an organic contraction of
3.4% to €382.8 million, with a less unfavourable second quarter (down
2.0%). The contraction reflected lower revenue at the SSCL joint
venture, for which full-year revenue is expected to total around £140
million (as indicated in early 2017). Adjusted for SSCL, revenue in the
United Kingdom was stable in a somewhat firmer business environment than
in 2017. The initiatives launched in late 2017 (to refocus the business
model on higher-added-value services, reinforce the Group's presence in
the private sector, invest in consulting and the Group's sales force,
and cut costs) made progress as planned. Against this backdrop,
operating margin on business activity stood at 4.5% (6.3% in the first
half of 2017). Performance in the second half of 2018 should get a boost
from renewed revenue growth and the initial benefits of the ongoing
initiatives, making the operating margin on business activity comparable
with the 7.6% recorded in the second half of 2017.

Revenue for the Other Europe reporting unit rose sharply to
€475.5 million (organic growth of 15.2%). Almost all the region's
countries enjoyed very robust growth, with a special mention for
Germany, which again delivered strong sales trends and operational
momentum. The region's operating profit on business activity rose 22.3%
to €32.9 million, representing a margin of 6.9% (6.8% in the first half
of 2017). That includes the impact of a negative one-day calendar effect
in Germany.

Sopra Banking Software posted revenue of €187.4 million (note
that Cassiopae's Property Management businesses were reclassified in Other
Solutions
). Growth at constant scope and exchange rates was 8.7%,
with services revenue providing the main driving force. Licence sales,
which are concentrated in the second part of the year, fell short of
their 2017 level in the first half. Operating margin on business
activity came to -4.5% in the first half of 2018, compared with 2.3% in
the first half of 2017, as a result of the level of research and
development costs (recognised in the income statement), which remained
high. Another key development in the first half, aside from investments,
was the go-live of some major projects, illustrating Sopra Banking
Software's ability to take on and successfully execute major
transformation projects:

  • The Sopra Banking Platform for Payments went live at Transactis in
    France in March
  • The Sopra Banking Platform went live at Argenta in Belgium in April
  • Amplitude Up went live for Attijariwafa Bank in Egypt in June
  • Cassiopae's specialised loan product for IDB (United States) and for
    certain Volkswagen dealerships participating in a pilot programme
    (France) went live

The pipeline for licences likely to materialise in the second half
remains healthy.

The Other Solutions (Human Resource Solutions and Property
Management Solutions) reporting unit posted revenue of €119.2 million,
representing organic growth of 4.0%. That includes Property Management
Solutions-related revenue generated by Cassiopae. Human Resource
Solutions benefited in particular from preparations to implement income
tax withholding in 2019 in France. Operating margin on business activity
came to 12.7%, up 1.3 points from its first-half 2017 level.

Comments on H1 2018 net profit (IFRS 15)

Profit from recurring operations came to €99.2 million. That includes a
€22.1 million expense related to share-based payments (€17.0 million in
the first half of 2017), as a result of the renewal, in 2018, of the We
Share
employee share ownership plan and of the long-term incentive
plan set up for the Group's main managers.

Operating profit was €80.0 million after a net expense of €19.1 million
for other operating income and expenses (compared with a net expense of
€11.4 million in first-half 2017), which included €18.0 million in
reorganisation and restructuring expenses.

Tax expense was €34.9 million in the half-year period, up from €30.8
million in the first half of 2017, representing a Group-wide effective
tax rate of 47.8% (31.8% in the first half of 2017). An annual effective
tax rate of around 30.5% is forecast.

The share of profit of equity-accounted companies (Axway) was €1.3
million in the half-year period (€1.0 million in first-half 2017).

The net profit attributable to the Group was €38.4 million after
deducting €1.1 million in respect of non-controlling interests. The
decline compared with the first half of 2017 (€65.9 million) was
attributable to more unfavourable seasonal effects in the first half
than in 2017; in particular, operating margin on business activity,
share-based payments, reorganisation and restructuring costs, and tax
expense were affected by this.

Financial position at 30 June 2018

Sopra Steria's financial position at 30 June 2018 is robust in terms of
both financial ratios and liquidity. Free cash flow for the first half
of the year, traditionally a period of net cash outflows due to seasonal
effects, amounted to a cash outflow of €114.3 million. Restated for the
late 2017 sale of receivables3, the net cash outflow totalled
€77.3 million, a significant improvement on the previous year. Sopra
Steria used €32 million less in cash during the first half of 2018 than
in the same period of 2017. That improvement was achieved despite an
increase of €8.1 million in restructuring-related outflows. It reflected
a €54.5 million decrease in the working capital requirement by
comparison with the first half of 2017, after restating for the sale of
receivables.

Net financial debt stood at €662.4 million at the end of June 2018, or
1.8x 12 month rolling EBITDA compared with 1.9x at 30 June 2017 (with
the bank covenant stipulating a maximum of 3x).

External growth and financial investments

The Group announced the following acquisitions in the first half of 2018:

  • BLUECARAT in Germany (2017 revenue: €33 million), consolidated from 1
    May 2018
  • O.R. System (2017 revenue: €2 million), consolidated from 1 April 2018
  • it-economics in Germany (2017 revenue: €20 million), consolidated from
    1 July 2018

In addition, Sopra Steria acquired a 10% stake in Sentryo, an innovative
industrial cybersecurity startup.

Workforce

At 30 June 2018, the Group's workforce totalled 42,779 people (41,661 at
31 December 2017), with 18.7% working in X-Shore zones.

2018 targets

As a reminder, the Group's targets for the 2018 financial year are as
follows:

  • Organic revenue growth of between 3% and 5%
  • Slight improvement in operating margin on business activity
  • Free cash flow in excess of €170 million (€133 million including the
    2017 sale of trade receivables)

Presentation meeting

The results for the first half of 2018 will be presented to analysts and
investors in French on 27 July 2018 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 French-language webcast: https://edge.media-server.com/m6/p/jtm74ogy

Register for the English-language webcast: https://edge.media-server.com/m6/p/jtm74ogy/lan/en

Or by phone:

French-language access number: +33 170 710 159 PIN: 96265572#

English-language access number: +44 207 194 37 59 PIN: 63214354#

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

Friday, 26 October 2018 (before market): publication of Q3 2018 revenue

Glossary

  • Restated revenue: revenue for the
    prior year, expressed on the basis of the scope and exchange rates for
    the current year.
  • Organic revenue growth:
    increase in revenue between the period under review and restated
    revenue for the same period in the prior financial year.
  • EBITDA: This measure, as defined
    in the Registration Document, is equal to the consolidated operating
    profit on business activity adding back depreciation and amortisation
    included in the operating profit on business activity.
  • Operating profit on business activity:
    This measure, as defined in the Registration Document, is equal to
    profit from recurring operations adjusted to exclude the expense
    relating to the cost of services rendered by the grantees of stock
    options and free shares and additions to the amortisation of allocated
    intangible assets.
  • Profit from recurring operations:
    This measure is equal to operating profit before other operating
    income and expenses, which includes any particularly significant items
    of operating income and expenses that are unusual, abnormal,
    infrequent or not predictive, presented separately to give a clearer
    picture of performance based on ordinary activities.
  • Recurring earnings per share: This
    measure is equal to basic earnings per share before taking into
    account other operating income and expenses net of tax.
  • Free cash flow: Free cash flow is
    defined as the net cash from operating activities, less investments
    (net of disposals) in property, plant & equipment, and intangible
    assets, less net interest paid and less additional contributions to
    address any deficits in defined-benefit pension plans.

Disclaimer

This presentation contains forward-looking information subject to
certain risks and uncertainties that may affect the Group's future
growth and financial results. Readers are reminded that licence
agreements, which often represent investments for clients, are signed in
greater numbers in the second half of the year, with varying impacts on
end-of-year performance. Actual outcomes and results may differ from
those described in this document due to operational risks and
uncertainties. More detailed information on the potential risks that may
affect the Group's financial results can be found in the 2017
Registration Document filed with the Autorité des Marchés Financiers
(AMF) on 13 April 2018 (see pages 35 and following in particular). Sopra
Steria does not undertake any obligation to update the forward-looking
information contained in this document beyond what is required by
current laws and regulations. The distribution of this document in
certain countries may be subject to certain laws and regulations.
Persons physically present in countries where this document is released,
published or distributed should inquire as to any applicable
restrictions and should comply with those restrictions.

About Sopra Steria

Sopra Steria, a European leader in digital transformation, provides one
of the most comprehensive portfolios of offerings on the market,
spanning consulting, systems integration, industry-specific solutions,
infrastructure management and business process services. Sopra Steria is
trusted by leading private and public-sector organisations to deliver
successful transformation programmes that address their most complex and
critical business challenges. Combining added value with innovative
high-performance services, Sopra Steria excels in guiding its clients
through their transformation projects to help them make the most of
digital technology. With 42,000 employees in more than 20 countries,
Sopra Steria generated revenue of €3.8 billion in 2017. Sopra Steria
(SOP) is listed on Euronext Paris (Compartment A) – ISIN: FR0000050809

For more information, please visit our website: www.soprasteria.com

Annexes

 
Sopra Steria: Impact on revenue of changes in scope and exchange
rates – H1 2018
€m  

H1 2018
IFRS 15

 

H1
2017

  Growth
Revenue     1,903.2  
IFRS 15 impact       -11.6    
Revenue IFRS 15   2,014.0   1,891.5   + 6.5%
Changes in exchange rates       -16.9    
Revenue at constant exchange rates   2,014.0   1,874.6   + 7.4%
Changes in scope       38.7    
Revenue at constant scope and exchange rates   2,014.0   1,913.4   + 5.3%
 
     
Sopra Steria: Changes in exchange rates – H1 2018            
For €1 / %  

Average rate
H1 2018

 

Average rate
H1 2017

  Change
Pound sterling 0.8798 0.8606 - 2.2%
Norwegian krone 9.5929 9.1785 - 4.3%
Swedish krona 10.1508 9.5968 - 5.5%
Danish krone 7.4476 7.4368 - 0.1%
Swiss franc   1.1697   1.0766   - 8.0%
 
     
Sopra Steria: Revenue by reporting unit (€m / %) – H1 2018
   

H1 2018
IFRS 15

  H1 2017

Restated*

  H1 2017

IFRS 15

  Organic growth   Total

growth

France   849.1   817.4 801.8 + 3.9% + 5.9%
United Kingdom 382.8 396.4 405.3 - 3.4% - 5.6%
Other Europe 475.5 412.6 396.6 + 15.2% + 19.9%
Sopra Banking Software 187.4 172.3 173.2 + 8.7% + 8.2%
Other Solutions   119.2   114.6   114.6   + 4.0%   + 4.0%
Sopra Steria Group   2,014.0   1,913.4   1,891.5   + 5.3%   + 6.5%
* Revenue at 2018 scope and exchange rates and after application
of IFRS 15
 
     
Sopra Steria: Revenue by reporting unit (€m / %) – Q2 2018
   

Q2 2018
IFRS 15

 

Q2 2017
Restated*

 

Q2 2017
IFRS 15

 

Organic growth

 

Total
growth

France   422.8   398.8 391.2 + 6.0% + 8.1%
United Kingdom 194.4 198.5 201.9 - 2.0% - 3.7%
Other Europe 243.9 208.3 196.5 + 17.1% + 24.2%
Sopra Banking Software 99.2 93.5 93.8 + 6.2% + 5.8%
Other Solutions   61.8   58.5   58.5   + 5.7%   + 5.7%
Sopra Steria Group   1,022.2   957.5   941.9   + 6.8%   + 8.5%
* Revenue at 2018 scope and exchange rates and after application
of IFRS 15
 
         
Sopra Steria: Performance by reporting unit – H1 2018        
      H1 2018       H1 2017
        IFRS 15       IFRS 15
€m       % €m %
France                                
Revenue 849.1 801.8
Operating profit on business activity 76.0 9.0% 72.2 9.0%
Profit from recurring operations 60.5 7.1% 60.8 7.6%
Operating profit 56.1 6.6% 56.6 7.1%
 
United Kingdom                                
Revenue 382.8 405.3
Operating profit on business activity 17.1 4.5% 25.5 6.3%
Profit from recurring operations 10.5 2.7% 19.1 4.7%
Operating profit 2.2 0.6% 19.2 4.7%
 
Other Europe                                
Revenue 475.5 396.6
Operating profit on business activity 32.9 6.9% 26.9 6.8%
Profit from recurring operations 28.9 6.1% 24.2 6.1%
Operating profit 25.1 5.3% 19.8 5.0%
 
Sopra Banking Software                                
Revenue 187.4 173.2
Operating profit on business activity -8.4 -4.5% 4.0 2.3%
Profit from recurring operations -14.6 -7.8% -1.8 -1.0%
Operating profit -16.2 -8.6% -3.3 -1.9%
 
Other Solutions                                
Revenue 119.2 114.6
Operating profit on business activity 15.1 12.7% 13.1 11.4%
Profit from recurring operations 13.9 11.7% 11.4 9.9%
Operating profit 12.8 10.8% 10.0 8.7%
 
                         
Sopra Steria: Consolidated income statement – H1 2018
     

H1 2018
IFRS 15

     

H1 2017
IFRS 15

 

      €m       %       €m       %
Revenue     2,014.0               1,891.5        
Staff costs 1,235.6 1,174.9
Operating expenses 624.4 570.1
Depreciation, amortisation and provisions     21.2               4.9        
Operating profit on business activity     132.8       6.6%       141.6       7.5%
Expenses related to stock options and related items 22.1 17.0
Amortisation of allocated intangible assets     11.6               10.9        
Profit from recurring operations     99.2       4.9%       113.7       6.0%
Other operating income and expenses     19.1               11.4        
Operating profit     80.0       4.0%       102.3       5.4%
Cost of net financial debt 3.7 3.5
Other financial income and expenses 3.2 1.8
Tax expense 34.9 30.7
Share of net profit from equity-accounted companies     1.3               1.0        
Net profit     39.5       2.0%       67.2       3.6%
Attributable to the Group 38.4 1.9% 65.9 3.5%
Non-controlling interests     1.1               1.3        
Weighted average number of shares in issue excl. treasury shares (m) 20.16 20.20
Basic earnings per share (€) 1.90 3.26
 
   
Sopra Steria: Change in net financial debt (€m) – H1 2018        
H1 2018 H1 2017
         
Operating profit on business activity   132,8   141,6
Depreciation, amortisation and provisions (excl. allocated
intangible assets)
  22,9   6,7
EBITDA   155,7   148,3
Non-cash items -3,5 -1,4
Tax paid -34,9 -23,7
Change in operating working capital requirement -169,4 -186,9
Reorganisation and restructuring costs   -20,7   -12,6
Net cash flow from operating activities   -72,8   -76,4
Change relating to investing activities -25,7 -20,8
Net financial interest -4,6 -3,1
Additional contributions related to defined-benefit pension plans   -11,2   -8,8
Free cash flow   -114,3   -109,1
Impact of changes in scope -15,7 -26,6
Financial investments -2,3 -1,9
Dividends paid - -
Dividends received from equity-accounted companies - 2,8
Capital increases in cash - 0,2
Purchase and sale of treasury shares -18,3 -1,0
Impact of changes in foreign exchange rates -1,6 -1,8
Other changes   -   0,1
Change in net financial debt   -152,3   -137,3
         
Net financial debt at beginning of period   510,1   506,0
Net financial debt at end of period   662,4   643,3
 
   
Sopra Steria: Simplified balance sheet (€m) – 30/06/2018        
30/06/18 31/12/17
    IFRS 15   IFRS 15
Goodwill 1,598.4 1,590.6
Allocated intangible assets 161.6 161.5
Other fixed assets 189.0 179.7
Equity-accounted investments 192.2 189.1
Fixed assets 2,142.2 2,120.9
 
Net deferred tax 83.2 99.1
 
Trade accounts receivable (net) 1,155.6 1,147.1
Other assets and liabilities -1,089.7 -1,188.1
Working capital requirement (WCR)   65.9   -41.0
Assets + WCR   2,290.4   2,179.0
         
Equity 1,295.4 1,237.2
Provisions for post-employment benefits 266.4 358.9
Provisions for contingencies and losses 66.1 72.8
Net financial debt   662.4   510.1
Capital invested 2,290.4 2,179.0
 
   
Sopra Steria: Workforce breakdown – 30/06/2018        
    30/06/18   31/12/17
France 19,056 18,649
United Kingdom 5,895 6,181
Other Europe 9,513 8,777
Rest of the World 305 281
X-Shore   8,010   7,773
Total 42,779 41,661
 
   
IFRS 15 impacts on the income statement (€m)        
Income statement  

H1 2017
before IFRS 15

 

H1 2017
after IFRS 15

Revenue   1 903,2   1 891,5
Staff costs   -1 761,1   -1 749,9
Operating profit on business activity   142,1   141,6
Profit from recurring operations 114,2 113,7
Operating profit 102,7 102,3
Other financial income and expenses -2,5 -1,8
Tax expense   -30,8   -30,7
Net profit from continuing operations   66,9   67,2
Consolidated net profit   66,9   67,2
Attributable to the Group 66,0 65,9
Non-controlling interests 0,9 1,3
 
     
IFRS 15 impacts on the balance sheet (€m)          
Balance sheet  

31/12/2017
before IFRS 15

   

31/12/2017
after IFRS 15

Deferred tax assets 115,4 115,1
Non-current assets 2 247,1 2 246,8
Trade accounts receivable 1 137,8 1 147,1
Other current assets 256,4 246,3
Current assets   1 556,6     1 555,8
Total assets   3 803,8     3 802,6
           
Consolidated reserves and other reserves 484,7 481,9
Profit for the year 171,4 172,5
Equity attributable to the Group 1 208,2 1 206,5
Non-controlling interests   31,8     30,7
Total equity   1 240,0     1 237,2
Deferred tax liabilities 16,8 16,0
Non-current liabilities 915,3 914,5
Other current liabilities 1 089,6 1 092,0
Current liabilities   1 648,5     1 650,9
Total liabilities   2 563,8     2 565,4
Total liabilities and equity   3 803,8     3 802,6
 

1 Alternative performance measures are defined in the
glossary at the end of this document.
2 After restating
the 2017 working capital requirement for the €37 million in trade
receivables sold and deconsolidated at year-end 2017.
3
€37.0 million in trade receivables were sold in December 2017 and
deconsolidated from the year-end 2017 working capital requirement.

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