Sopra Steria Group SA (SPSAF) (Q2 2024) Earnings Call Highlights: Strong Margins Amidst ...

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  • Revenue: EUR 2,949.4 million for H1 2024.

  • Organic Total Growth: 3.8% for H1 2024.

  • Organic Growth: 0.3% for H1 2024.

  • Operating Margin: Estimated at 9.7% for H1 2024, an increase of 0.9% compared to H1 2023.

  • Net Margin for Continuing Activities: Approximately 5.5% for H1 2024, compared to 4.3% in H1 2023.

  • Net Margin Rate for Continuing Operations After Minority Interest: Estimated at 5.5% for H1 2024, compared to 4% in H1 2023.

  • Full Year Net Margin Rate Estimate: 3.2% for 2024.

  • Sopra Banking Software Sale Impact: Estimated at 0.5% for H1 2024.

Release Date: July 18, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Sopra Steria Group SA (SPSAF) reported an estimated operating margin of 9.7% for the first half of 2024, an increase from the previous year.

  • The company is confident in achieving its full-year operating margin target of at least 9.7%, with a goal close to 10%.

  • Growth in other European countries, particularly Scandinavia, Spain, and Italy, remains positive.

  • The integration of acquired companies is progressing well, contributing positively to margins.

  • The sale of Sopra Banking Software is expected to be finalized before September 2024, which is anticipated to positively impact the company's financials.

Negative Points

  • The economic environment in France is increasingly uncertain, leading to a slowdown in customer decision-making and impacting revenue growth.

  • There is a temporary delay in the ramp-up of a significant contract in the UK, which is now expected to contribute to growth in 2025.

  • The aerospace sector is facing difficulties in ramping up production, negatively impacting the order book for 2024.

  • Organic growth target for 2024 has been adjusted to a stable level, down from the previous target of 2% to 4%.

  • The French market is experiencing slight negative growth, with specific challenges in sectors like aerospace, energy, and telecommunications.

Q & A Highlights

Q: Can you provide an update on the UK contract delay and its expected start in 2025? A: Cyril Malarge, CEO: The UK contract involves several batches, with the last batch being delayed. We are confident it will start in early 2025, based on current information.

Q: How is the French market affecting your business, and what are the expectations for the second half? A: Cyril Malarge, CEO: The French market faced difficulties in June, but we expect improvement in the second half compared to the first half. However, there is still uncertainty, and we anticipate slight negative growth in France.

Q: What is the correlation between Airbus production and your order intake? A: Cyril Malarge, CEO: There is no direct correlation, but a rebound for Airbus was anticipated in the second half, which may not occur. This affects decisions at Airbus and the supply chain, delaying a rebound for several months.

Q: How are you maintaining your operating margin despite lower growth? A: Cyril Malarge, CEO: We have implemented measures to improve margins, such as cost optimization, real estate footprint reduction, and workforce management. These actions, along with synergies from acquisitions, support our confidence in achieving our margin target.

Q: What is the basis for your new growth target, and how confident are you in achieving it? A: Cyril Malarge, CEO: We reassessed our guidance based on a thorough review of our commercial pipeline, considering extended decision cycles in France. We have good visibility for the second half, especially with key customers like Airbus.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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