Solutions 30 SE

PAR:S30

Earnings Call Transcript 2021-Q4

[Operator]

Hello, and welcome to Solutions 30 2021 Final Year Revenue. Please note, this conference is being recorded. [Operator Instructions] I will now hand over to your host, Gianbeppi Fortis, CEO; and Amaury Boilot, CFO, to begin today's conference. Thank you.

[Gianbeppi Fortis, Co]

Good evening, everybody, and thank you for being with us today for this conference call. Please note that in 2022, our conference call will be held immediately after the release of our financials at 6:15 p.m. I'm here today with Amaury Boilot, our CFO, to present our Q4 and full year 2021 revenue. As usual, we will open the Q&A session at the end of the presentation. Let's start with Slide #4. After a very good start of the year in 2021 with a growth of about 21%, the business was contrasted in Q4, same as what it was in Q3. The second half of 2020 was exceptionally strong with the highly positive impact of remote work as a consequence of the COVID lockdown situation. Today, we are experiencing a mature market in France as the construction of the FTTH network has reached the peak last year. The deployment of electricity smart meters is reaching an end. On the other hand, we are experiencing great momentum in most European countries and especially in Belgium, in Netherlands, in the U.K. and in Italy. These countries are where France was in 2015, before the revenue was multiplied by 6 in 5 years. And for the first time in our history, international revenues are almost equal to French revenues. Concerning new activities, charging stations for electrical vehicles, solar panels and 5G, they've been affected by the supply chain issues that are -- that we are all experiencing, and their growth is lower than expected. As a result, in '21, revenue was EUR 873.8 million, an increase of 6.7% over last year. This performance is early affected by short-term factors related to the COVID pandemic that had no impact on the midterm perspectives of our company.First of all, all the interventions that are not done now are not lost, but just postponed. Secondly, despite these market conditions, in 2021, we are making about EUR 50 million of revenues in businesses that we did not have 2 years ago. Charging stations for cars, solar panels and activities related to mobile telecom networks. And this number will double at least in 2022, which proves our ability to capture new market opportunities. And third point, in almost 20 years, Solutions 30 has never seen such favorable market conditions, given the massive investments that are related to the post-COVID recovery plans. We are therefore convinced that in 2022 and for many years to come, we will manage to get back to double-digit growth. Another important topic is GRC. We are currently implementing strengthened and harmonized governance, risk and compliance processes across the group. And lastly, we have reserved a healthy financial structure, and we have confirmed the trust of our partners, in particular, our banks. Therefore, we are set to resume our European development strategy that relies on both internal and external growth. But Amaury, please go ahead with the financials.

[Amaury Boilot, Group CFO & Member of Executive Board]

Thank you, Gianbeppi, and good evening, everyone. So we switch to Slide #6. Well as you can see on this slide, revenue reached EUR 873.8 million for the 12 months of 2021, up 6.7%. On a like-for-like basis, revenue is up by 3.5%. I remind you that mainly due to the COVID situation, we put our M&A activities on hold in 2020. We actually resumed M&A in November this year with the acquisition of the assets of Mono Consultants in order to improve our coverage in the U.K. and our clients' portfolio in the field of mobile telecommunications networks. The group's maintenance business, which is recurrent in nature, represents 57% of the group's revenue, which is in line with 2020. Compared to 2019, before COVID, our revenue is up by more than 26%. Next slide, please. Solution 30 posted revenue of EUR 220 million in the last quarter of 2021. This is an 8% decline and minus 11% on a like-for-like basis. This evolution is due to a particularly high basis of comparison in Q4 2020, where the number of new client connections literally boomed in France after the first lockdown and also to ongoing difficulties in the supply of material, which caused some call-outs to be postponed. Compared to Q4 2019 pre-COVID activity level, Q4 2021 is up by nearly 10%.Next. On this graph, you will note the quarterly trend. You can see the peak in 2020 that I was just mentioning with extremely high levels of activity in Q3 and Q4 2020 as well as in Q1 2021. In 2021, the activity has progressively stabilized with a sequential growth, which has normalized. The current level of activity is still high compared to historical performances with quarterly revenue above EUR 200 million. The year 2021 actually offset a very unusual 2020, and we expect to get back to a more normal setting in 2022. Next, please. On Slide #10, you have a view on the evolution of the revenue across our activities in France. In 2021, revenue in France reached EUR 507.6 million, down by 2.9%. In Q4 2021, revenue amounted to EUR 115.8 million down 27% compared to the same period of 2020. We will take a closer look at the quarterly evolution in the next slide with Gianbeppi. Next.

[Gianbeppi Fortis, Co]

Yes. Thank you, Amaury. Revenue from the energy business amounted to EUR 16.8 million in the fourth quarter '21 compared with EUR 25.5 million in 2020. Revenue from smart meters deployment has decreased by about 60% to EUR 7.1 million and has been only partially offset by opportunities in new market segments, including the installation of charging stations for electrical vehicles and solar panels. These activities are ramping up, although they are suffering from supply chain shortages.The IT business is back to growth and positive revenues of EUR 12.6 million compared to EUR 10.7 million for the same period in '20. Security and retail business were up 18% compared to '20 with revenues of EUR 7 million compared to EUR 5.9 million 1 year earlier. Our biggest contributor to the revenue in the Telecom segment posted revenue of $79.4 million, down by 32% after several years of continued high double-digit growth.Let's take a closer look to the market. Next slide, please. We can see that our revenue is closely correlated to the evolution of the fast Internet market in France. French fiber plan aims at adding 100% of homes passed by 2025. 2025 is moving forward very quickly. And today, about 2/3 of homes are eligible for fiber. The construction of the network is, therefore, almost finished in dense areas, and Solutions 30 makes less than 25% of its revenue in this segment and was therefore only marginally exposed to this deployment phase, and most of our activities are customer-facing.Our core business is the last digital mile, meaning the connections of homes and the maintenance of the installed base at home. 32% of homes are connected to fiber at the end of September '21 in France. And the number of new connections as peak in second half 2020, as you can see in the orange line on the graph. And now the speed of connections settled down to a lower level also because of the supply chain issues. Maintenance, to which we can add the churn and the new home construction, has not yet reached decreasing speed. And while such activity is still increasing, it does not compensate yet the slowdown in deployment and in the piece of installation. The French telecom market is becoming mature with growth rates that are less impressive than they used to, but there is still room for growth. It will now mostly come from gain in market share. Amaury, back to you, please. Next slide.

[Amaury Boilot, Group CFO & Member of Executive Board]

Thanks, Gianbeppi. Let's now move on the development of our revenue in the Benelux region. In 2021, revenue in Benelux reached EUR 160 million, up 17.5%. Growth is actually accelerating as fourth quarter revenue amounted to almost EUR 46 million, up by 27%. As a reminder, the growth was actually almost 16% in Q3. So the Telecom business grew purely organically by 16%. The rollout of its high speed networks has begun in the country, and the contracts signed by the group in September have started to contribute to revenues.Revenue from the Energy business amounted to EUR 8.6 million compared with EUR 2.4 million over 1 year before. This growth is driven by the installation of smart meters in Flanders on behalf of Fluvius. The group's other business segments, notably charging stations for electric vehicles and renewable energy activities are currently suffering from shortage in the supply chain. The IT business posted a revenue of EUR 2.2 million compared to EUR 2.6 million last year. And the security and retail business posted a revenue of EUR 1.7 million compared to EUR 2.5 million in 2020. Next, please. In all the other countries, the group's revenue at the end of December 2021 grew by 28.6% and almost 16% on a like-for-like basis compared to 2020. On the fourth quarter, the trend is very similar since revenue was up by 29.6%. In Germany, revenue amounted to EUR 16.3 million in the fourth quarter of 2021 compared to EUR 17.6 million in Q4 2020. Germany has launched a number of initiatives to improve its broadband infrastructure. So in 2021, we have reorganized our local organization in order to be ready to capture growth from network deployment when the market will start to ramp up. We are actually expecting the country to resume growth in the second half of 2020. In Italy, revenue grew by 72% to EUR 13.9 million and is still driven by the ramp-up of FTTH infrastructure deployment in the north of the country. In Spain, we are still gaining market shares and benefiting from the contracts that were signed earlier this year. The business grew organically by 30% to EUR 14.5 million in the fourth quarter of 2021. In Poland, we have returned to growth with Q4 revenue up by 13% compared to last year. Underlying trends remain very positive in this market.Finally, Solutions 30 posted revenue of EUR 6.2 million in the U.K. We are accelerating our growth, and the acquisition of Mono Consultants' assets in November will help us to capture new opportunities faster. We are currently building a strong offering in the U.K., especially in the 5G segment, and we are now diversifying convergence in Mono Consultants' business towards 6 telecommunication networks and lead charging with infrastructure. I now hand over to Gianbeppi.

[Gianbeppi Fortis, Co]

Thank you, Amaury. Next slide, please. As we are entering a new phase of growth, Solutions 30 is pursuing its transformation plan with the objective of implementing a strengthened and harmonized risk management, compliance and governance procedures in the first half of 2022.Next slide, please. We have initiated this plan with the help of KPMG in the summer of 2021, and the deployment consists in 3 phases. We are now in the third one, which is the implementation. The first step was to analyze our current GRC procedures and to make a GAAP analysis compared to European regulation and best-in-class practices. We identified several areas of improvement that we divided into 6 work streams, most important of them being to implement a uniform third-party due diligence process and uniform risk mitigation procedures.Next slide, please. In this slide, you see the 6 work streams, how they are developing. So as of today, all of our work streams are in line with our decline or adding new procedures in place in the first half of 2022. The most complex ones are the first 2, and they are well underway; 3 and 4 are much easier, and therefore, they are almost done; and then the last 2 come a little bit later with training and the sanctions that we have to define, they come at the end of the project. So we are in line. Things are moving as planned, and we are also in the process of hiring a group compliance manager that will then make these processes lead for the rest of the year.Next slide, please. So for the group as a whole, we expect an EBITDA margin in 2021, slightly lower than what we had in the first half due to the contraction of the activity in France and the continued ramp-up in Benelux, Italy and United Kingdom, and these ramp-ups, I think, dilute a little bit our margins in these countries. But in our geographical footprint, we see many opportunities. So let's go through each country.In the U.K., we still have a strong momentum towards 5G. The country is deploying 5G, and we are well positioned to take advantage of that. And now we are moving our current organization towards the fiber deployments, are ramping up very, very strongly in the U.K. In France, as we said, our focus is now to consolidate market share and develop the new activities related to energy transition. In Spain, we are also gaining market share, and we are diversifying the activity towards energy because the activity in Spain is mostly telecom and IT. Benelux is developing very well. We are continuing the deployment of smart meters in Flanders, and we are ramping up fiber-related activities in Belgium and Holland. In Poland, we are diversifying the activities into new telecom clients and also new energy segments. In Germany, Germany is the latest country and the one that is more slowly, but we are getting ready for fiber, and we are now quite confident that Germany will also begin its fiber deployment. And in Italy, we have a strong growth, thanks to the contract we signed with Telecom Italia, and we are continuing to deliver and ramp it up. So let me just say another word about the new activities that we are developing. As I said before, 2 years ago, we did not have any activities related to the energy transition and to mobile networks. In '21, these 2 segments represent about EUR 50 million of revenues, and that will more than double in 2022, and then they will continue to grow for many years. We have done this already in the past because, initially, our activity was based on DSL technology only. Then we began energy, and then fiber became important. And now we're seeing, again, new technologies beginning to generate revenues, and that's just the way we have been developing the company for the last 20 years. So in both the medium and long term, we are confident in our ability to grab important market opportunities across Europe, and we are well positioned to capture significant market share in the deployment of fiber optic networks in countries that are still under equipped, in particular Benelux, U.K., Poland, Italy and Germany, and gain market share also in the segment of electric mobility, the rollout of renewable energy solutions and in the deployment of 5G. Our strategy remains unchanged. We aim at duplicating our French model throughout Europe. And we strongly believe that our expertise acquired in France, combined with our presence across Europe, is a key advantage as important activities in several major geographies are now ramping up. We, therefore, believe we can reach, in all countries, the critical size that we have reached in France. Next slide. As I said earlier, while we are currently suffering from the COVID pandemic, in 20 years with Solutions 30, I've never seen such favorable market conditions with the combination of both strong structural trends in telecom and energy and massive investment parts of the European recovery plan. On our side, we have a proven strategy that has already been successful in France and in Benelux and strong competitive advantages that will allow us to gain market share and keep developing our company for many years to come. Thank you for your attention. We will now answer your questions.

[Operator]

[Operator Instructions]

[Gianbeppi Fortis, Co]

We have a question. Can you confirm what the revenue from new activities is? I could not hear whether it was EUR 50 million or EUR 15 million in '21. What is included in this number? No, it's EUR 50 million, 5-0, in '21. What is included in this number? Well, Amaury, you want to take this with more detail?

[Amaury Boilot, Group CFO & Member of Executive Board]

Yes. Well, so 50% of this amount is actually related to energy activities, and so we have there all the activities related to the installation and maintenance of charges for electric vehicles as well as all the technologies related to renewable energies like solar panels. So that is for the energy side. And then on top of that, you have all the -- all our activities related to the mobile network, 4G and 5G equipment basically.

[Gianbeppi Fortis, Co]

Thanks, Amaury. We have another question. When do you expect supply chain to come back to normal? When it will be over? Will you be able to meet the possible sharp increase in demand from customers? Well, let me begin with the second part. The answer to the second part is yes, because that's something we have already done in 2020. First half 2020, very slow lockdown, and we managed to reduce our costs and preserve our margins. Then during the summer, lockdown was eased, and we were able to do a very strong catch up. So we believe that we will do it again when the situation gets better. Now first part of the question is, when this situation will get better? I wish I had an answer, but unfortunately, I don't. All I've seen in the last quarter of the year, this actually began in the summer, was that we had more and more COVID cases. So the number of COVID cases in the company grew by a factor of 30, 3-0, between, let's say, September and January, so very significantly. And I guess that for our clients and also for our suppliers, the logistics partners, transportation partners, was the same. So basically, the whole machine was really disrupted in this period. And when we ask different people, we get different answers. So unfortunately, we cannot say when this will be back to normal. What we can say is that the activities that we do not do today are not lost, and we will be able to catch up as soon as the situation is back to normal. I have another question. Can you tell us more about the Orange tender offer, especially the part that you won against Scopelec? Yes, this is something that was quite a lot in the press, in the French press, in the past weeks. It was a tender offer that was issued by Orange. It's something that was planned, that was expected. And basically, what Orange did was reshuffled a little bit the position of the different players. They are subcontractors. And what the outcome for us was that we remain with stable market share, but the geographical distribution is not exactly the same as before.There was a big loser in the tender offer, which is the company Scopelec. They were punished because they were not performing and they did not perform in the past month -- for several months. So basically, they lost a lot of market share, and that's basically what it is. So no special news on our side and one player in the market that is now very weak.How do you expect to stabilize the revenue in 2022 in France? Well, these 2 effects is -- so let's forget the supply chain problems. Let's forget COVID because that's something we cannot control. But we have 2 effects in France. On one side, we have deployments that are slowing down, fiber and smart meters, electricity meters. And on the other side, we have the new activities that are ramping up. As we said before, at group level, but it's the same in France, these activities are doubling from 2021 to 2022, and the trend is very strong. The problem we have is that we are not sure of the issues that the supply chain will add for these new activities. So at this moment, we are struggling in several geographies to add the charging stations. The physical stations are not available in certain places. We are struggling to have some 5G equipment. It's not arriving. We are also having problems in several places because we need equipment for fiber, the fiber itself. Equipment that is supposed to come from China is not arriving on time. So there is an overall disruption in the supply chain, and you don't see it in countries out of the France because the growth there is so strong that you see double-digit growth anyway, but the disruption is all across Europe. In France, you see it because the market is mature. And since there is the slowdown on the deployment, the new activities are not catching up fast enough to fill that gap. But we are confident that we will fill that gap. The only question is how long will take for the new activities to ramp up. That's still the difficult question to answer. Another question. One, what market share gains can be expected in France? Well, let's take the telecom market. In France, there is, I would say, 12, 15 companies that are Tier 1. So we have contracts directly with the major telecommunication companies. And what's happening is that the weak companies are slowly losing market share. While we spoke about Scopelec, I will say that that's the first big company that will be shaking in 2022 and the following years and then probably others. I think it's a market that can go down to maybe 5, 6 players. So you can expect that we could double market share if we do just as well as the others. So the potential for growth with market share gain is quite significant. And then another question is, double-digit growth in terms of turnover and margin still possible in France and in what time frame? Well, double-digit growth in my opinion, it's still possible. The question is the time frame. As I said before, the big question mark is the speed at which the new activities can ramp up given the current circumstances. I really do not have an answer for that. I'm sorry. Another question. Are your activities in growing the European regions affected by the difficulty of recruiting staff? And how do you attract teams, especially where labor needs are high and unemployment rates are low, Belgium, U.K. and Germany? Well, yes, I mean recruiting people is being something that we have been doing for 20 years. And I would say that for technicians, it's actually not much harder than before. We have a team that goes across the countries that is in place in our executive committee. So there is people from other countries that work together and together look at how to source people, make sure that people stay and also move people around from one country to the other. So at the moment, no problems to source people and no major problems on salary levels. We have seen some salaries increasing but on some critical positions in our company, not on the technician side. So no issues of inflation on salaries. Can you give us an update on the search for an anchor shareholder? Well, it's a process that we started during the summer '21. We prepared the documentation. We entered a more active phase now in the last part of '21. I would say it's moving as planned. Now we are in touch with a certain number of third parties that are interested, both industrial and financial, but it's really too early to tell the outcome. So I would say it's moving according to plan. As soon as we will have something that is relevant, of course, we will let you know. You mentioned resuming M&A. Do you already have a precise agenda? In what field? Well, we have been doing M&A for a while, and what we like is acquired companies that take anything between EUR 5 million and EUR 50 million of revenues. We have a certain number of rationale that we follow when we do this kind of exercise. First of all, we like companies that allows us to cover a certain country better. So for example, in Germany, we are more strong in the south, less in the north. We like companies that are in the north. We would like to acquire companies that allows us to cover the country better. Another rationale is companies that have clients that are interesting. So again, in each of the countries, we are looking for the main players. And sometimes, it's easier to get access to them, to acquire a company that has already the contract our relationship. So that's the second type of target that we like. A third type of target we like is the target that can bring certain skills. So for example, when we began targeting mobile network activities, we began doing some small acquisitions, one in Spain, then one in Italy and then the U.K. So that was done to acquire the skills that would allow us to be present in the mobile network space. So that's another rationale. And yes, so these are the main rationale, and we have opportunities in all of the geographies. So we have a pipeline of M&A opportunities, and that was put on hold in 2021, but the opportunities are there. So we are resuming now our normal M&A process. I would say expect more news in 2022, a little bit in the first half and then probably more in the second half. Another question. You seem comfortable in the group achieving double-digit revenue growth in '22. Is this mainly driven by M&A? No, it's a mixture. We believe -- we like what we did already in the past, 50-50 between M&A and organic growth. And it's not perfect, it can be 60-40 or 70-30. But when you look at it over a 3- or 5-year time, it's about 50-50, and we like that. It allows us to keep things under control. So other 2 questions. Could you please share your global targets for 2022 in terms of sales and EBITDA? Sorry, but we don't do that. We do not like to give short-term targets. We do a tendency, and it's what we said before. We believe that in '22, we can have double-digit growth. I will be cautious, in particular on EBITDA, because the big question mark is still the disruption of the supply chain and this COVID situation. We still don't know how long this is going to last. And that, of course, has an impact on our operations. Second part of the question is, what about your net debt position at the end of '21? And what amount of debt are subject to renegotiation and/or refinancing in '22? Amaury, do you want to take this?

[Amaury Boilot, Group CFO & Member of Executive Board]

Yes. Thank you, Gianbeppi. Well, actually, we had a very limited M&A activity over the last months. So basically, we just repaid some of our debt, but then the structure of our balance sheet hasn't changed with what -- with respect to the past figures, notably in June. So we have the same gearing structure, I would say. Our loan is still going on, so we don't have to go into a negotiation in a [ compulsory model ] in 2022.

[Gianbeppi Fortis, Co]

Any other question? How do you explain that you had no issue with COVID in 2020 and you have one now? Well, yes, in 2020, we did have issues with COVID, and the first half of 2020 was not good. I don't know if you remember it, but when it began in March in Italy, it was very hard, and then there was a lockdown. The Linky deployment activities were stopped for a couple of months. So it was pretty tough first half '20, not a very good part of the year. But then we had a very, very strong second half 2020 because there was a catch-up effect. And, we managed to bounce back quickly and grab the opportunity. Now the situation is different because, in my opinion, it's just because there is more cases. You have seen yesterday in France that we have more than 0.5 million people tested positive. And as I said before, the number of positive COVID cases in the company grew by a factor of 30, 3-0, between September and January. At the moment, we have about one person 1 of 20 that has COVID that is positive, and I'm not considering there people who are contact case. So basically, I think on average, we must have 1 out of 10, 1 out of 20 or something between 10 and 20 people at the moment that has to go through some quarantine. And of course, that creates disruption because the team you have in the field needs to be reshuffled. And then it's the same for the partners. So the problem is just a number of cases. So a slowdown of the logistics, slowdown of the transportation, some clients that are getting sick and then cancel the appointment. That's the problem. So the difference between 20 and now is just the number of cases that is much higher and the quarantine that is associated with that. Question, will PKF be doing a retrospective audit of the '21 accounts? If they are not, will they be in a position to offer an unqualified opinion on the 2022 accounts? Amaury, do you want to take this one?

[Amaury Boilot, Group CFO & Member of Executive Board]

Well, PKF is currently working and doing its audit tasks. So they were appointed in June. So they are auditing the full 2021 accounts, including the opening balance sheet, and they already gave a view on that in their reports that we issued at the end of September. So as we said in September, they're included in the reported technical reserves, which is limited to the comparison of P&L data on 2020 since the previous auditor issued a disclaimer on the figures. So we can expect to have a similar technical reserve in the 2021 report. But then in 2022, yes, we do expect to be back to a totally clean opinion without any reserves from PKF on the 2022 accounts.

[Gianbeppi Fortis, Co]

Other questions? Okay. If there are no other questions, let me thank you for participating to this conference call. And just as a reminder, I know that we are going through difficult times, both personally and professionally because of this COVID situation. I do believe that it's a short-term problem and that will be overcome some time, I hope, this year. When we look at the mid and long term on our side, we really believe that we are very lucky to be in sectors where we are seeing very strong structural trends and also huge investments that are coming with the European recovery plan. So we will be back on track in '22 and then in the following years. Thank you again for being with us. Have a good evening.