EuroBusiness Media (EBM): Steria, one of the leading IT services companies in Europe, reports earnings for the first-half of 2010. François Enaud, welcome. You are the Chairman and CEO of Steria. What are your comments on the group’s performance in the first-half of this year?
François Enaud (FE): The first comment is a comment of satisfaction. Regarding these results, we can be really satisfied by the different performances. First, regarding the organic growth, it’s 3.3% growth, which is really above the market, and with purely organic (growth), without any forex impact, the organic growth is 1.4%, still above the market. Regarding the operating margin, we are 50 basis points above our expectations, and market expectations. And finally regarding net margins, it’s an increase by 58%. And our net margin on the revenue has increased from 2% to 3%. Definitely and globally, these first-half results are really good.
EBM: What are the main trends that you are seeing by geographic zone?
FE: If we start by the UK, our first country, we can say that the UK is more than resisting. First, regarding the revenue, we are growing, slightly, but growing. And without the forex impact, we are slightly decreasing by 1%. Regarding the operating margin, we still have a double-digit operating margin, which is, may I remind you, one of the top performances in the UK market. This is due to our profile, long-term contracts combined with a high offshore portion. The backlog and the sales dynamic in the UK have been excellent in the first-half, with an increase of orders, compared to last year, and a backlog increasing due to a book-to-bill above 1x, at 1.3x for the UK. Now, for France, it is also fantastic news to see France growing now faster than the market and gaining market share, after a good first quarter, the second quarter is even better. We are growing by 5% in France, due to the new sales dynamic, which is really the direct consequence of our sales synergies, resulting from the merger with Xansa at the end of 2007, because we are now combining, I would say, the two best-in-class assets within Steria, which is a new industrial dimension resulting from the merger between Xansa and Steria, with this new way of delivering our services from global, delivery centers, fully industrialized. Together with our well-known proximity dimension, intimacy with clients, delivering flexibility, agility, so expected and needed by our clients. Then in Germany, if we continue the trip in Europe, country by country, in Germany, yes we do benefit from a market economy which is a bit better than in France and the UK. However, we are gaining market share as well, we are growing by 3%, which is above the average, and especially in banking and energy, where the growth is 10%. In Scandinavia, still a fast-growing area for us, 7% for the first-half, which is good, again, certainly above the market. And in Spain, good news, after a very tough period, due to the macro-economy in Spain, with a decline of revenue by 10%, and even more for our competitors, we are very close to flat for the second quarter, only -1%, and we will certainly grow in Q3. So, that’s definitely, country by country, a good performance, and every country has contributed to this overall performance, leading to this market share gain for the Steria Group.
EBM: In the context you’ve described, how do you manage your resources, for example, have you started to recruit again?
FE: Obviously, yes, and we are accelerating the recruitment, to go with this new trend of business, and we have recruited over 2000 people at the end of the first-half, and we are planning to recruit, for the full-year, something close to 5000 people. Just to give you an idea of the acceleration, at the beginning of the year, where our managers were maybe still a bit sceptical about the capability to maintain the utilization of resources as high as it was, they were recruiting only 200 people per month. Now, at the end of the first-half, in June, we have recruited 500 people during that month alone. That’s definitely the trend. Yes, obviously, we are recruiting, which is good news, by the way, for the newcomers, and the labour market, and particularly for the new graduates coming onto the market in September after the summer.
EBM: Do you expect the recovery of the IT services sector to continue during the second-half of this year, or do you fear that it will be cut short due to the macroeconomic concerns?
FE: Personally, I am rather confident and it’s just factual, it’s just based on what we do observe, on sales, on book-to-bill, the backlog is increasing, but also the pipeline is increasing. The pipeline gives you the visibility on the future of the business, coming from your clients, so definitely all the revenue and business indicators are on the right side. So that’s why I do consider that the performance of the growth in H1 is not just punctual, but really structural. And for sure the volume will continue to be good. We cannot forget that the crisis is still in the head of our clients, that’s why the price pressure will remain high, certainly, because our clients are still looking for cost-savings. But they do consider now, definitely, that it is more than time to engage in transformation projects to generate the savings, and definitely, the IT is the best enabler for that.
EBM: What are your comments on the projected impact of the public sector spending cuts in the United Kingdom?
FE: I would say, obviously, as it is for all countries in Europe, and not only just for the UK - UK may be expressing that more strongly with a new government in place – but the challenge is the same for all the countries in Europe, facing a very big deficit and chasing any opportunity to save money. And for that, I would say, we can see the situation either as a threat, if you just consider the overall spending reductions or, as a fantastic opportunity, if you consider the way that the government will have to generate these savings. And they have no option, they want to maintain or even increase the quality of the services they deliver to the citizens, together with the decrease of the overall spending. There is no other option for them other than to transform their IT, their applications and processes, in order to work differently, and to increase their efficiency. That’s why for us it’s a source of plenty of opportunities to make the transformation a reality, and just to make these short term savings possible.
EBM: Precisely, the recent Cleveland deal looks to be a different kind of BPO work - it's going outside the existing Finance and Accounting area of expertise, for example - do you see this business model as being a pointer towards opening up future opportunities elsewhere?
FE: Yes, for sure. But before that I would say it is a very good proof of our capability to win sizable contracts. This one - 210 million euros - is the largest contract ever signed by Steria. Beyond the size, this contract is emblematic of what Steria can provide to an administration to generate savings, the savings they are looking for, because this contract embarks in one single contract all the IT transformation, the shared services, the transformation of the way of delivering services, and BPO - meaning that we are not just delivering IT services but business processes, and business processes not only for back office processes but as well for front office processes. Definitely, this contract embarks all the dimensions Steria can provide and can offer to public clients to generate expected savings.
EBM: What is your guidance for the full-year? Do you confirm your previously stated objectives for 2010?
FE: Yes we do, and we do, first because of the excellent business situation at the end of the first-half: the increasing backlog, the increasing pipeline, allowing us to be confident to generate at least the same growth in the second-half compared to the first-half, and even slightly better. Regarding the operating margin, excluding the positive impact of the new treatment of taxes in France, we will confirm and we do confirm our operating margin target for the full year.
EBM: François Enaud, Chairman and CEO of Steria, thank you very much.
FE : You’re welcome.
