EuroBusinessMedia (EBM): Steria, one of Europe's leading IT services companies, just reported full year profits for 2006. François Enaud welcome, you are the General Manager of Steria, what are your comments on the company's financial and business performance in 2006?
François Enaud (FE): First, I would like to come back on our gross revenue, with an increase of 7% for the full year and more than 10 % for the second half, we have over performed the market, which is very good and which fits completely with the strategic objective to gain market share organically. And regarding financial results, with a 7.1% operating margin, we meet completely the commitment we took in 2002, the day after the merger with Integris, to come back to one of the best levels of profitability in the industry. We can be proud to achieve these commitments after 5 years of transformations.
EBM: What is your business update by geographical zone?
FE: My first subject of satisfaction is to see our three main countries performing very well. With more than 10% of organic growth in UK, Germany and France, and with a profitability of more than 9% before corporate fees, these three countries are performing very well, are contributing a lot to the overall performance of the group. I would like to remind you that these three countries together represent 80% of the group. That gives a very strong sign of solidity of our overall performance. But beyond that, I cannot forget that the other areas - the 20 other percent of our revenue - have contributed as well to the overall improvement, by improving their profitability like we did in Scandinavia, in Spain and in Belux and Switzerland.
EBM: Now that you have reached the 7% margin target you had set for the group, what is your new margin target, and where to you see potential productivity gains in order to achieve this target?
FE: Before mentioning our new objective in terms of profitability, I would like to insist again on the objective consisting in gaining market share organically - meaning to continue to grow faster than the market. Regarding profitability, obviously we still have some levers to improve on the 7% of profitability delivered in 2006. These levers are around four main topics: first to increase the business mix, evolving the business mix, meaning increasing the value of the services sold to our clients; secondly, to extend our delivery model - we have engaged transformation in our delivery, in our back offices now for three years and we extend this delivery model to application management and to application development, in the same way as we did before for the data centres and for the help desk centres; we also have a lever regarding the improvement of our existing current profitability in Germany, because Germany has a huge potential to improve again their profitability to make it certainly the best one within the group in the very near future; and we have a lever regarding the less profitable countries within our portfolio, with Scandinavia, Spain, Belux, which can contribute as well to improving a bit more our current profitability.
EBM: In France, your main market, wages are rising faster than selling prices, which remain flat. What is your strategy to offset this structurally negative impact on your margins?
FE: First, I would like to precise that this price pressure is particularly strong on commoditised businesses. And all the sense of our strategy is to escape and to take some distance from these commoditised services, by investing in solutions, by investing in business expertise in order to sell more and more value to our clients and in this way escaping the price pressure operated on the - I would say - "common services". That's the sense of our focalisation in order to increase leadership and to increase differentiators around our solutions. That's as well the sense of our innovation programme - to bring new ideas and new solutions to the market and to anticipate the evolution of the market - and that's the sense, as well, of our willingness to make Steria unique; unique not only in the content of our offers, but in the way to deliver these offers, making Steria unique in terms of people management and the way of dealing with our clients.
EBM: What are your comments on your offshore strategy in general, and on India in particular? The market expects you to form some kind of joint venture locally, but an announcement has yet to be made.
FE: For sure, offshore and nearshore is a key element of our strategy. It's a key element because it's completely a part of our global delivery model. We have started to implement such a global delivery model in 2002, when we decided to create a global delivery unit, putting together all our data centres, our help desks in order to industrialise our managed services business. Now we extend this model, this global delivery model, to the applications fields, including application management and application development. That's why now we are looking to increase our offshore and nearshore capabilities to reinforce or delivery forces located in Europe. That's why we have engaged three main programmes in 2007 to speed up this industrialisation. One regarding a global service centre as, I would say, a control tower of our contacts with out clients - taking into account the different calls for managing incidents or managing new service requests from clients, either regarding their obligations or regarding their infrastructure -, as a single point of contact. And this global service centre will connect together all our existing service centres with a new gravity centre in a nearshore country - probably Eastern Europe; it's still to be fixed. The second programme is regarding the extension of our delivery capabilities in India with the opening of a new centre in India by the end of this year. And the third programme is to open as well a new delivery centre in a French speaking zone, and we have a specific attention to Morocco, because we already have some existing clients there, giving us the possibility to mix development of local business and increasing nearshore capabilities for our European business.
EBM: What is your acquisition strategy in 2007, in the UK in particular, as the market expects you to make a move in the UK?
FE: Without forgetting that organic growth remains a top priority, you're right to come back to our willingness and strategic objective to increase our visibility on the market. That's the reason for the external growth we are looking for. It's not just to get volume. It's definitely to increase our visibility and eligibility for large operations for clients. In fact the main goal is to keep a direct access with our clients. That's the main challenge for us. That's why size is one of our three objectives, with focus and with excellence of the delivery. Now, coming back to our target, it's true as well that we have indicated France and the UK as priorities to reinforce our visibility and our strength on our existing business in France and the UK. Why France and the UK? Because we consider that we are ready to do that in France and the UK according to our current position, according to our current level of performance. That's why we are investigating particularly such potential acquisitions in the short term, either in France or in the UK.
EBM: The UK market would appear to be less buoyant than it once was. If you were to rank the European markets, in which countries do you anticipate the most dynamic growth these days?
FE: You're right to point out the fact that the British economy is maybe less booming than it was - without forgetting that it remains a good economy and, by the way, probably with higher growth in 2007 than in France. The second remark is regarding the structure of the market in the UK. You're right as well to mention the fact that there are less mega-deals than in the past. Mega-deals meaning multi billion deals. But this is good news for us - because less mega deals means more big deals - and we are eligible for big deals - we were not mega deals. So the position of Steria is more in favour of this new structure of the market than it was. Thirdly, in the public sector, there is still a very strong demand for defence, home office and criminal justice in the UK, and these are precisely our three main clients within the central government in the UK. Again our position fits very well with the demand and evolution of the market in the UK. Now, to answer your question - What is the most booming market for the next period in Europe? - Without any hesitation, it's Germany. The global macro economy in Germany is very good and very healthy for the time being. Everybody knows now that it will probably be the fastest growing economy in Europe. And this is good news for us as well, because, we are in the right position, in the right shape, at the right time. And we will certainly profit from this new situation in Germany.
François Enaud, General Manager of Steria, thank you very much
FE: You're welcome.
