Sopra Group: solid growth in 1st half of 2013

Regulatory News:

The Board of Directors of Sopra Group (Paris:SOP), convened on 31 July 2013 at a meeting chaired by Pierre Pasquier, approved the financial statements for the first half of 2013. The consolidated half-year financial statements were subjected to a limited review by the statutory auditors.

Pierre Pasquier commented: "We are pleased with this respectable performance in a market environment that is still so difficult. Our business model, which offers a comprehensive approach combining the consulting, IT services and software development business segments, our high value-added offers and the gradual implementation of a strategy that meets our clients’ technological needs have enabled the Group to stay on course and confirm its targets both for the year and up to 2015.”

¹ Current scope: including HR Access, consolidated as from 1 April 2013.

² Change calculated at constant exchange rates and group structure.

³ Operating profit on business activity corresponds to profit from recurring operations before expenses related to stock options and amortisation charges for allocated intangible assets.

Comments on business activity

Revenue for the first half of 2013 amounted to €661.0 million, representing total growth of 12.1% and organic growth of 4.9%. In the second quarter, revenue came to €339.7 million, representing total growth of 12.6% and organic growth of 7.3%.

Operating profit on business activity was €41.3 million, generating a margin of 6.2%.

After deducting costs associated with stock options and bonus shares for a total of €1.4 million and amortisation of intangible assets of €2.4 million, profit from recurring operations was €37.5 million, representing a margin of 5.7%.

Taking into account negative goodwill, restructuring expenses and other operating income and expenses, operating profit came to €63.6 million, representing a margin of 9.6%. The Group emphasises that the entirety of negative goodwill was recognised in the first half of the year, while a large portion of restructuring expenses will be recognised in the second half.

Net financial expense was €2.4 million. Total tax expense amounted to €13.4 million.

Net profit, including Axway's €2.4 million contribution, thus amounted to €50.2 million with a net margin of 7.6%.

In France, revenue came to €413.7 million, representing total growth of 4.5% and organic growth of 4.6%. This solid performance achieved in a difficult market environment was sustained by key accounts, which posted organic growth of close to 12.0% over the first half of the year. Operating profit on business activity totalled €31.0 million, with a margin of 7.5% compared to 8.8% in the first half of 2012. As mentioned previously (see 13 June 2013 press release), investments in large-scale projects were significant but should have a lesser impact on the second half of the year.

In Europe, revenue amounted to €122.9 million, representing total growth of 12.8% and organic growth of 9.5%. This growth was due to the performances of the Italian, Belgian and German subsidiaries, in which investments generated double-digit growth. Meanwhile, performance stabilised in the United Kingdom and declined slightly in Spain under persistently difficult market conditions. Operating profit on business activity in Europe came to €3.5 million, which represented an operating margin on business activity of 2.8%, with the United Kingdom, Italy and Switzerland showing the best profitability. Sopra Group expects an operating margin on business activity in Europe for the year slightly below that achieved in the prior year.

For Sopra Banking Software, revenue for the first half of the year was €107.8 million, for total growth of 27.0% and organic growth of 1.3%. The operating margin on business activity reached 9.7% in the first half of the year. Business activity in France posted organic growth of 7.2%, and despite uncertainty surrounding licence sales at year end, the subsidiary’s annual margin should be above 10%.

With respect to HR Access, the Group’s latest acquisition, revenue amounted to €16.6 million in the second quarter, an increase of 2.5%. With the integration process well on track, breakeven could be achieved in the second half of the year in terms of operating profit on business activity, provided licence sales perform as hoped.

At 30 June 2013, the Group’s workforce totalled 16,100 people. The Group added 880 employees via acquisition and 1,830 through recruiting. The net increase in the workforce was 1,790 people compared to 31 December 2012.

Financial position

Equity amounted to €332.7 million. Net debt at 30 June 2013 was €216.2 million, taking into account the employee profit sharing liability of €31.3 million. Consequently, net bank debt amounted to €184.9 million. The net debt to equity ratio, determined excluding employee profit sharing to calculate bank covenants, came to 55.6%.

The Group has available credit lines of €295 million, in addition to authorised overdraft facilities.

At 30 June 2013, the financial position remained solid, both with respect to debt maturity and compliance with banking covenants.

Furthermore, at 31 July 2013, the Group extended a €150 million revolving line of credit by two years. Initially maturing in June 2016, the line is now extended to June 2018.

Outlook

Sopra Group confirmed its annual targets, namely:

• Organic growth of between 2% and 5%;
• Operating margin on business activity, calculated based on the former scope, in excess of 8.0%;
• Operating margin on business activity, calculated at the current scope, of between 7.3% and 7.7%;
• Net profit margin at least equal to that of the prior year, i.e. 4.6%;
• Net debt of between €150 million and €170 million.

The Group also confirmed its targets up to 2015, aiming to reach revenue of between €1.5 billion and €2 billion and an operating margin on business activity of the order of 10%.

Financial calendar

Thursday, 1 August 2013, at 3.30 pm: Presentation of the half-year results at Hôtel Le Meurice.

Monday, 28 October 2013, after the stock market closes: Publication of third-quarter revenue.

Annexes

⁴ Gross cash flow from operations less corporate income tax paid, changes in working capital requirements, capital expenditures and net financial interest paid.