Hello and welcome to the SPIE Q1 2023 results call. Please note this call is being recorded. For the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. I will now hand you over to Gauthier Louette, Chairman and CEO, joined by Jérôme Vanhove, Group CFO, to begin today's conference. Please go ahead.
Good morning, ladies and gentlemen. Thank you for attending SPIE's conference call for 2023 Q1 revenue. We are indeed very pleased with the excellent performance we delivered in Q1, a record level of our quarterly organic growth and the continuing increase of EBITDA margin. In this context of sharply rising energy costs and growing awareness of the climate crisis, we do provide highly valuable services for industry decarbonization, e-mobility, building efficiency, or smart cities. As we always say, SPIE is definitely part of the solution. Let us start with the top priority for SPIE, our commitment to safety at work. As it is, today happens to be the World Day for Safety and Health at Work. Today, all SPIE employees are taking part in workshops. This year motto being, at SPIE safety is everyone's business.
In all our locations, we're organizing interaction, dialogues, and training around videos presenting risk in different SPIE environment. The objective is to ensure that all our employees are fully aware that it is their responsibility every day to do everything they can to prevent accidents from happening and to return home safely each day. Now let's discuss some good examples to highlight our expertise. On slide four, in Germany, SPIE has been awarded a four years extension contract to oversee the technical facility management of a 90,000 square meters building housing the Hamburg municipality. We provide services for almost all the properties, building technology, ventilation, air conditioning, lifts, sprinklers, electrical, heating, and plumbing systems, as well as control technology. We also monitor the building and its fire alarm system 24 hours a day, seven days a week.
In addition, we will also implement energy efficient solutions such as LED lighting. This contract was first signed in 2019, and its recent extension evidences the high quality of services we are providing and the strength of the relationship with our customer. On slide 5, in the Netherlands, we signed a four years framework agreement for the installation of TenneT's 2 GW land stations to connect onshore and offshore grids. TenneT will connect offshore wind farms according to a new innovative standard named HVDC, high voltage direct current connection. SPIE will focus on the building-related installations such as lighting and power installation, data cabling, heating and cooling system, as well as access control, fire alarm, and evacuation systems.
We collaborate with all parties in BIM, Building Information Modeling, and this project is a good illustration of the active role SPIE plays in the energy transition of the Netherlands. As you know, TenneT is one of our major customer in the Netherlands. Moving to slide six and speaking of energy transition, SPIE France has been appointed as the lead contractor for the renovation of the lighting of the Parc des Sources in Vichy until 2028. SPIE will be responsible for implementing all the low voltage systems, creating and renovating more than 270 light posts, enhancing the façade of the historic building in the park.
The Parc des Sources is part of the grand renaissance project of the thermal heart, the ultimate goal of the renovation is expected to provide circa 60% energy savings while taking into account the fauna and flora of the area. Now on slide eight, moving to the key highlight of this first quarter. As I said, we delivered a record level of quarterly organic growth for the second quarter in a row with an outstanding organic growth at +10.9%. This trend reflects the good momentum of our market, driven by the need for energy transition. It does also evidence our pricing power in an inflationary context. Our EBITDA margin increased by 30 basis points.
In summary, this first quarter reaffirms the strength of our model and positioning, which is characterized by our distinctive market presence, established pricing power, continuous operational excellence, and obviously the full commitment of our people. This good start to the year gives us confidence in delivering on our 2023 guidance. Moving to the next slide nine, our financial highlights. Total revenue reached almost EUR two billion, a record level for a first quarter at SPIE. Reported growth was 11.3% and organic growth was at an all-time high of 10.9%. Our EBITDA amounted to EUR 85 million, up 20.2%, and our EBITDA margin was up 30 basis points compared to Q1, 2022 at 4.2%.
This is a good performance and showing good discipline and good pricing power as well in this inflationary context. Looking to our growth per segment. As you can see with the dark blue bars, we achieved a double-digit organic growth in almost all segments with strong dynamics. Northwestern Europe 14.6%, oil and gas and nuclear 14.4%, France 10.4%, and Germany and Central Europe 8.6%. At group level, the scope effect is very limited at 0.3%, with the deconsolidation of U.K. being compensated by the contribution from acquisitions. Overall, our growth at constant FX is 11.2%. Again, a very good start to the year. Now let's have a look at the detail per segment, starting with France on slide 11.
In France, we did enjoy a strong dynamic across all our markets, and we achieved a very solid organic growth of 10.4%. Our Tech FM activities continued to benefit from the growing appetite of our customers for our innovative technical services and solutions, with obviously a strong bias to energy efficiency. In the industry, our clients continue to invest in electrification and decarbonization to reduce their carbon emissions and to mitigate climate change. Building solution is boosted by energy renovation as well and technological upgrades in office buildings. City networks is driven by the rise of e-mobility and by smart city solutions, in particular LED public lightings, which offers direct and fast payback to the customer.
On slide 12, sorry, in Germany and Central Europe, our growth at constant FX is very strong at 14.4%, driven by solid organic growth of 8.6% and a scope effect of 5.6%. On an underlying basis, organic growth in Germany is on mid-single digit trend. The exhibited moderate 3.5% organic growth for the quarter being attributed to a high comparison basis with a very buoyant Q1 2022, which was up 8.5% organic. We have some product phasing effects in high voltage with commencement dates on some projects have been postponed because of last-minute administrative issues.
This good momentum in Germany is supported by Tech FM, the strong demand for energy efficiency solutions and office spaces modernization, similar to what we emphasized in France, and by ICS with managed services and unified communication activities as well as digitalization projects in healthcare. Coming back to high voltage, the outlook remains very good thanks to our dynamic order intake and the backlog, which is at an all-time high. In Central Europe countries, we are very pleased with the progress, excellent organic growth, and promising performance of the recent acquisitions. In Switzerland, the supply chain issue we have been mentioning last year, they do ease up a bit and thus we did see a good level of organic growth this quarter in Switzerland. Looking at Northwestern Europe, we recorded a buoyant 14.6% organic growth driven by both the Netherlands and Belgium.
In the Netherlands, the surge in activity was fueled by industry services and particularly electrification projects such as the upgrade of high voltage installation for power supply of the industrial plants, the implementation of LED lighting, and the shift from gas to electricity. Building solutions strong performance does showcase our vastly improved market position thanks to the Worksphere acquisition. In addition, information and communication services benefited from cross-selling opportunities with Worksphere's historical clients and a good momentum in healthcare projects and fire protection solutions. In Belgium, revenue growth was mainly driven by a good dynamic in our building as well as in our industry services activities. Finally, looking at our oil and gas and nuclear division. The total revenue was by 16.4% with a strong 14.4% organic growth.
Oil and gas services continued to deliver strong organic growth, which does include the ramp-up of several contracts. We mentioned the one we won in Denmark last year. As we do see a good upturn in brownfield investment after a period of tight spending from the oil majors. The order backlog remains at a record level. In nuclear services, as anticipated, revenue remained broadly stable. Some maintenance operations are still postponed by EDF, and we think it might affect the activity throughout the year. Now we hand over to Jérôme, who will comment further on our financial performance.
Thank you, Gauthier, good morning, everyone. I'm on slide 16, starting with our income statement highlights. As Gauthier just mentioned, in Q1, we had a very good start to the year being reflected in the following financial KPIs. We delivered almost EUR 2 billion of revenue. Our organic growth of 10.9% evidences the good momentum on our markets, bearing in mind a rather favorable comparison basis and an abuse pricing effect. Our EBITDA margin reached 4.2% of revenue, a 30 basis point improvement year-over-year. Finally, our EBITDA increased by 20% is driven by organic growth and EBITDA margin improvement combined with the contribution of our acquisitions. Moving to the revenue bridge. Above our strong organic growth of 10.9%, the perimeter effect is almost neutral at group level at +0.3%.
It is on one hand a positive 3.6% effect linked to the 5 bolt-on acquisitions, contribution, 2 in Poland, 2 in Germany and 1 in France, as well as the full quarter consolidation effect of Worksphere, for which we had only two months in the first quarter 2022. On the other hand, we have the scope effect of -3.2%, mainly linked to the disposal of our U.K. operations, deconsolidated since the 1st of January of this year. Slide 18. Compared to the first quarter of 2021, 2 years ago, our EBITDA margin increased by 50 basis points, with circa EUR 85 million EBITDA in Q1 2023, representing more than a 40% increase in comparison to 2021. It is a step change for the group, evidencing the strength of our model.
A strong discipline on margin, a unique positioning to benefit from market trends and value-creative bolt-on M&A. Compared to quarter one, 2022, we delivered a 30 basis point increase of our EBITDA margin. It reflects our ability to further increase our EBITDA margin despite the inflationary context, as well as the accretive effect of circa 10 basis points related to the U.K. disposal. This concludes my part. I will now hand it back to Gauthier.
Thank you, Jérôme. As we just pointed out, Q1 is a very good start to the year indeed. We're enjoying record order backlog on the back of very strong market fundamentals. Let me highlight two points. First on organic growth. As we move through the year, the comparison basis will become more demanding. In 2022, organic growth was at only 4.1% in H1, but as high as 9.4% in H2. Second, on our bolt-on M&A, no deal were signed in Q1, but we have several M&A situations on hand, and we are looking at a rich pipeline of opportunities. Altogether, this good start to the year obviously gives us confidence in delivering on our 2023 guidance. Mid-single digit organic growth.
Further EBITDA margin increase compared to the 6.3% we achieved in 2022. High focus on bolt-on M&A, which does remain at the core of our business model. We'll keep our payout ratio at circa 40% of our adjusted attributable net income. To conclude, we do offer innovative solutions and cutting-edge technologies in energy transition and digital transformation for our customer. We are at the heart of the solution and we are looking to the years to come with great confidence and emission. As I always say, it is a good time to be an electrical engineer, and in this regard, I can only encourage you to look at our green book that we published recently on our website, and we've given the link here. It really gives a very good insight of all our solutions for our customers.
I will thank you now for your attention. With Jerome, we are quite happy to take your questions.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. That is star one for your questions today. Our first question today comes from Oscar Val of J.P. Morgan. Please go ahead.
Yes, good morning, Gauthier and Jérôme. Three questions from my side. The first 1 just on the outlook for the rest of the year. The full year guidance is unchanged, which implies a slowdown. Were there any one-offs in Q1 that you wanna call out, or is there anything that worries you for the rest of the year in some of the more cyclical end markets? That's the first question. The second one is specifically on the German transmission and distribution phasing. It was, I guess, still weak in Q1. Do you have any visibility when this will recover? Could you give us a sense of how large these contracts are in terms of when they do ramp up. The third question is around, I guess pricing and cost inflation.
You don't have a pricing number, could you talk about how pricing or cost inflation has changed since December? Thank you.
With regard to the outlook, but this is the first quarter and as I said, as the comparables will become tougher especially in H2. However, there are no specific slowdown we see in the market right now on the contrary. So, you know, at the beginning of the year, we do not want to get over confident and we are really looking at a very strong backlog and we do not see any shift in the trends as we speak. Again, I remind you that Q3 last year, we achieved 8.5% growth, and it was above 10% in Q4.
A bit of cautiousness at this time of year is probably in order. Again, as far as business trends are concerned, no worries whatsoever. Regarding transmission in Germany, we had a very strong first quarter last year, we had, I think 10% organic growth last year. We did have a couple of contracts which were supposed to start, and they've been delayed at more or less at the last minute. This is fixed as we speak, and by the way, the customer does compensate us for the incurred standby of the crew. It's not that detrimental in terms of margin.
We see it weighs on prediction. We think we will see a different trend in the second quarter and for the balance of the year. Again, some phasing effect, no worries. In the meantime, we keep piling new orders. Again, we have a very good visibility mid-term as well. We do not specifically communicate on margin for a specific subsegment, but margin high voltage are very satisfying altogether. Now to the pricing and cost impact.
Well, what we see is, we see a bit of improvement on the supply chain, and we gave the example of Switzerland, meaning that delivery times are now more under control. In some instances, the cost of some suppliers are stabilized or in very few cases have gone down a bit. We'd not see the surge in prices that we had to deal with sometime last year, which is a good thing, because we see it has some impact on the top line. I can tell you it's an uphill battle to maintain the margins when we have this rise in inflation.
That's the trend we see right now.
Thank you.
Thank you. Now we're moving on to our next question, which comes from Rory McKenzie of UBS. Please go ahead.
Morning all, it's Rory here. Just wanted to follow up on the pricing point really, to try and help us all understand the really strong growth. Could we maybe try and break this down into headcount changes and then pricing and productivity? I guess there's two questions. One, in your last annual report, I think headcount was up 4.9% year-over-year in December. Is Q1 headcount growing the same or faster than that rate? Secondly, compared to that 4.9% headcount growth, last year, you had constant currency revenue growth of about 16% or maybe more like 13%, adjusting for the U.K. disposal. Does that mean that pricing and productivity was adding 7%-8% to revenue growth? Has that been accelerating so far this year?
Thank you.
Well, I mean, this is very hard to tell, Rory, as you know, and probably you're much more sophisticated than we are in this regard. Yes, the headcount is growing, not as fast as we would like. Obviously there's a lot of tension on the market, not only with our competitors, but also with our customers. In a number of instances, we are losing people to our customers, which is not great, but well, it's at least we have then good ambassadors on the customer side. We have a heavy effort on the recruitment, which is paying off.
We did manage to recruit probably in the range of 6,000 people last year. All together, there's a strong emphasis on recruitment, and we did manage to grow the headcount. On top of that, you have to take into account some change in mix, huh, and areas where you see the turnover per head is much higher, as it linked with the amount of supply also entail, huh? And then we've been working a lot on productivity as well, obviously to a limit, but it's something, you know, in this area, in this time of growth, obviously you take all the slack you have in the business, huh?
And on top of that, well, we have resorted also to more subcontracting and more temporary workers. Again, there is a limit to that, especially in terms of quality of the services you deliver and controlling the workforce. We've been pulling all registers. Probably, the price impact has increased over the year, obviously, and when we say that we managed to pass on inflation cost to our customers, well, there is a strong reflection in the top line as well. Again, it'd be very hard put to quantify it properly with all the, you know, effects I've been mentioning.
No, that's very helpful. Thank you. Can I just ask on the headcount growth or the employee base? I think the resignation rate increased back up nearly 8% last year. Are you expecting, or are you worried about that ending this year even higher?
Well, we're not worried about it. We're not pleased either. We used to, you know, over the past four years, I think this resignation rate has increased a couple of percent. We were more in the range of 5% to 6%, but we are now more into 7% to 8% range depending on the countries. I think the general trend post COVID, in general, and then specifically for our type of work, I mentioned the strain on resources, including at our customers. That's what we see. We see the market is more fluid nowadays. We keep it under control. Again, we do a lot of effort for talent retention by many ways and means.
One of them, an important one being all the, you know, employee shareholder plans we put in place. Also we see, we ensure that we work a lot to be an employer of choice, which we have achieved in many countries.
That's great. Thank you very much.
Thank you. Up next, we have Christophe Chaput of ODDO BHF. Please go ahead.
Yes. Good morning, Gauthier and Jérôme. I just would like to come back on the +30 basis points margin EBITDA. You give the figure of 10 basis points regarding the U.K., the positive figure. Are you able as well to share with us the impact from the Worksphere acquisition, which is supposed to be positive related to the synergy you had extract?
I'll take the question, Christophe. Bonjour. You have to bear in mind that Worksphere, A, did make a lot of improvement in comparison to the performance they had at the time of the acquisition. They developed very rapidly. B, more importantly, Worksphere has much less of seasonality in the profit recognition profile over the various quarters, which is very customary for building activity, which is absolutely not exposed as some infrastructure activity we have elsewhere in the group. On this performance for the first quarter, I would assume the impact of Worksphere being very negligible in terms of accretion or dilution.
Okay. Which mean that, the level of synergy, let's say, already, took you, let's say, to the average of the group in terms of profitability?
No, not quite yet. Well, the synergies have not been fully delivered, so we still have some to realize this year. Worksphere has been closing the gap with the historic Netherlands, but they're not yet at the level of Netherlands. We still have some hope for the future. I mean, not necessarily everything this year, but over the next couple of years, to bring them to the level of the balances in a sense. More or less.
The last one...
Yeah, go ahead.
Sorry. Yeah, the last one is probably the M&A. You say that the pipeline is quite rich in term of opportunity for the balance of the year.
Yeah.
Usually you say you give some figure about the level of M&A, that bolt-on M&A that you can consider for the full year, which is EUR 250 million. Basically, would you say that this level is reachable as far as your backlog, let's say, of opportunity is concerned?
Yeah, the fact that in our guidance for 2023 we no longer gave any specific quantified indication obviously does not mean that M&A is no longer important. It stays really at the core of our strategy. We did that especially because we all know that in terms of M&A and our ability to appreciate more especially what can be delivered quarter after quarter or in a given year, there is always an element of uncertainty so as to consider the sequencing of our operation. That's the only reason. Regarding the pipeline, it stays really good.
We develop a lot of efforts so as to nurture that pipeline. We currently have a satisfying number of live M&A situations, making us still comfortable regarding what we could deliver in this year.
Thank you very much, congratulations for the great Q1. Thank you.
Thank you, Christophe.
Thank you. As a brief reminder, to ask a question today, please signal by pressing star one. We now move to a question from Eric Lemarié of CIC. Please go ahead.
Yes. Good morning. Thanks for taking my question. I've got three actually, some follow-ups mostly. The first one on this term, phasing high voltage in Germany. I didn't properly catch once actually. Does the phasing impact in Germany will disappear in Q2 or perhaps more later in the course of the year? That's my first question. I got a second question on M&A. Do you see in the current environment with a strong level of demand from your customers, obviously, do you see an opportunity to add a new country to your footprint, especially now that you have divested the UK?
The last question on the, well, say the competition situation in the market, have you already started to observe the impact on the market, from the new strategy of Equans, you know, to be more focused on margin and more aggressive on prices? Thank you.
Regarding high voltage, we do see a better Q2 clearly. From now the projects which are ongoing, et cetera, we think we'll have a much better Q2. Regarding M&A, I think we have a lot already to do in our existing geographies. As you have noticed also in the recent years, we have built up quite a good position in Central Europe and especially in Poland. We have also now we're starting to have a very decent business in Austria. These are now platforms where we'll be able and I'm thinking especially of Austria to build further.
The main priority remaining obviously, Germany, where we have still a lot of opportunities and we're working on them. So we do not really plan to open up a new country right now. I think we have a lot of fish to fry on the existing geographies. And regarding Equans, well, it's a recent closing now by Bouygues and, at least in terms of intentions, strategies and messages, we do see a much better context with a focus on margin over volume, focus on cash generation. So that's very good. And we think it's going to bear fruit definitely.
We as we see right now, we, I have much less complaints about kamikaze behavior from Equans as we had in the past. More on the confident side in this regard.
Thank you. That's very clear. Thank you very much.
Thank you. Now we move on to David Cerdan of Kepler. Please go ahead.
Yeah. Good morning. Gauthier, Jérôme and Audrey. Most of my questions have been answered quite nicely. But I would like just to ask you the question regarding the EBIT, EBITDA margin improvement in Q1. Is it roughly the same in all regions, or do you see some differences in terms of performances or progress per region? My second question is regarding the human factor. In which region do you face the difficulties to recruit, to retain employees, and what are the actions to fix it? Thank you.
Regarding the margin, we know you see the, we might have a bit differences of improvement depending on the segment. As Jérôme mentioned, there's a good progress in the Netherlands amongst others. Generally the trends are good everywhere else. No, it's quite a constant across the countries. Regarding manpower, the stress on manpower again now is similar everywhere. It's, we cannot see really a difference. If I look at all the countries where we are active right now, the demand for our type of skills is similar.
You know, it's unemployment levels have tended to go down everywhere, but and specifically in our type of work, even with higher employment level, it was not easy to find the right type of resources, so it does not improve in this context. We do a lot to counteract this, starting with training and apprenticeship. We have about 5% of apprenticeship within the company. We will work a lot on a recruitment campaign, and we have developed a co-optation policy with a reward to the people who are able to bring good people to the business. It is very efficient and because first, people are able to read...
Our own employees are able to talk really well about what they do in the company, and we see they bring people they know. It is reassuring for these people because they have confidence in their recruiters. Also our own guys, they also want to bring good people, so obviously they're selective in people they talk to. So it is a very efficient system accounting in some areas for as much as 50% of our recruitment. Then we work on a lot of other topics regarding quality at work, you know, and clearly I mentioned the employee sharing schemes which we are going to do again this year.
I think one thing we cannot overstress is the fact that our, you know, the message we give about being part of the solution, doing something for the planet, et cetera, it does ring a bell, and especially amongst younger people, younger engineers, and that's something that we are going to stress even further going forward.
Just maybe to follow on this, do you see a change in the turnover rate of your employees? Do you see some competitors with some, I would say dumping action to recruit people?
I mentioned that turnover, it's, you know, it's, it has been creeping up over the last four years. Now up to 7%, 8% from 5% to 6%. It's not an explosion either, but it's a trend we are watching closely. With regard to competitors, you have the odd case of poaching, obviously, or some people offering inflated salaries. Well, it's rather the odd case than the general trend. As I mentioned, the other thing we have to deal with is our people being approached by our customers. Again, well, there are two sides to this.
We have to make do with this behaviors sometimes and make the best of it in terms of maintaining the relationship going forward.
Regarding the M&A, do you see an expansion in the acquisition multiples when you discuss with your potential targets?
Actually, not really in what we in what we are targeting in small to medium-sized bolt-on M&A. I don't see any major deviation in that respect. As stated already, we favor situations where we can start one-on-one situation in exclusive talks with with sellers and thus favoring as much as possible reasonable, I would say, conditions. In some very specific cases where auctions are driven and leading to inflated multiples, we look twice at it first.
Thank you very much.
Thank you. As a final reminder, that is star one for your questions today. We will pause for a brief moment. We have a brief follow-up from David Cerdan of Kepler. Please go ahead.
Thank you. For sure, this is the last question on my side. Can you remind me, sorry, what is the earn out case for you? Do you see earn out to increase because the acquisition have delivered certainly a better than expected performance?
Actually, we do not have so many, and so much earn out situation. Unless I missed, misunderstood the question.
Okay, perfect.
Thank you. Now I would like to hand the call back over to Gauthier Louette and Jérôme Vanhove for any additional or closing remarks.
I understand there's a further question.
Yeah, apologies. We just got a question from Oscar Val of J.P. Morgan. Please go ahead.
Hi, both. Yes, sorry. Just coming back here on pricing. You've talked about supply chain conditions easing. Can you just remind us from a raw materials point of view, do you see that potentially being negative to pricing this year? Could you remind us how much exposure you have to raw materials, copper, some of those products which might be coming down in price?
Well, it's not huge per se because in many instances, it is the customer. You know, for a large project where there's a large amount of cables, it is, it is the customers who is buying the cables for us, huh? It's free issue to us. That is the impact for us is nil one way or the other. I mean, this is obviously then we do buy cables for smaller stuff, et cetera, but it's not a huge quantity all together, huh? Again, we have seen the situation easing up in terms of availability. We have seen some stabilization in the price.
I cannot say that we have seen some decrease in the price yet, huh? It, it might end up at some stage, but it's not what we see. Really, you must understand that, you know, inflation for us is not good news. It's preferable to have stabilizing prices, and getting the inflation passed across to our customer is not a piece of cake. Really, we have did manage. It's been a lot of work, lot of negotiation. The indexes, they do help, but sometime with some lagging time as well. The margin increase we have seen is, well, it's on real quality of what we're doing, discipline, etc. And we have not seized the opportunity of inflation.
It's not the way it works, on the contrary. Again, inflation is uphill battle for us.
Okay. Okay. Thank you.
Thank you. As there are no further questions, I'd now like to hand back for closing remarks.
Well, thank you very much for attending this call, this morning. Thank you for your interest, for SPIE. On the back of this, very good first quarter, obviously we're going to work very hard to maintain a good momentum throughout the year and as we always do, deliver on our guidance. Thanks a lot, and do not forget it is a good time to be an electrical engineer. Thank you.
Thank you. That concludes today's conference. You may now disconnect.