Spie SA

PAR:SPIE

Earnings Call Transcript 2020-Q3

[Operator]

Hello, and welcome to SPIE Q3 2020 results. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions]I will now hand you over to your host, Gauthier Louette, Chairman and CEO, to begin today's conference. Thank you.

[Gauthier Louette, Chairman & CEO]

Good morning, ladies and gentlemen, and thank you for attending SPIE's conference call for our Q3 results.First, we do hope that you are safe and well. The COVID-19 pandemic is far from over, and it has regained momentum in the recent weeks. As you will see in this presentation, SPIE continues to demonstrate great resilience in this unprecedented context. In the third quarter, we enjoyed a very good recovery momentum. And I will, together with Michel, give you details about SPIE's performance, which once again illustrates how mission critical our services are and how reactive and committed our teams are. I would like to take this opportunity to once again thank all of our 47,000 employees who are really doing a great job and showing utmost dedication. Before looking into details to our figures, let's start with a few contract examples that illustrates well our business.On Slide 3. In Germany, SPIE will realize 64 kilometers of new high-voltage lines for TenneT. These projects are part of the new major North-South link, which will be key to allow the transition to renewable energy. Part of services will also consist in upgrading existing lines from high voltage, 220 kilovolt, to extra high voltage, 380 kilovolt, in order to allow the transportation of wind energy. This is a good example of how our services are critical to allow the energy transition in Germany, And TenneT is a major customer for us both in Germany and in the Netherlands.On Slide 4. In France, local municipalities are important customers of ours for electrical vehicle charging infrastructure. We're already very active in installation, and now we are starting to get maintenance contracts here for 4 departments in Nouvelle-Aquitaine. The scope is preventive and curative maintenance of 175 charging points of the mobile network. This is a good example of our e-mobility footprint which -- with public customers who will be very active next year, with the French stimulus plan aiming at tripling the number of public charge points. It is also a good example of how e-mobility is offering recurring business for SPIE going forward.On Slide 5. In the field of energy efficiency, this is a project in Germany handled by our teams from Osmo. Osmo is a company we acquired in 2019. We work for Emschergenossenschaft, the oldest and largest water board in Germany, in the Bottrop wastewater treatment plant. We are installing 4 new combined heat and power units as well as the heat distribution systems in a thermosolar drying unit for sewage sludge. These units will generate saving of 60,000 tons of CO2 per year for our customer. We'll be also in charge of the maintenance of this technical equipment for the next 4 years.And finally, on Slide 6. In the Netherlands, we are the leading player in services to wet infrastructure. This infrastructure, dams, locks, et cetera, are essential to the country as water level is always a concern. In this example, we have installed an emergency pumping system in IJmuiden on the North Sea Canal to fix a critical malfunction in a regular pump, which is now being repaired. This is part of our mission to maintain all of the North Sea Canal pumping system, and this is more -- becoming more and more crucial with climate change and the rise in water levels.Turning now to Q3. Let's have a look at the main takeaways from this publication. We enjoyed a fast and strong business recovery in Q3 following a sharp decline in Q2 due to the COVID-related lockdowns. In particular, our French business quickly recovered to normal activity levels, and we recorded good growth in Germany. At group level, this resulted in Q3 revenue and EBITA coming back close to last year's level. And it is worth mentioning that cash collection remained very strong through the quarter. This quarter does demonstrate further our strong resilience since the onset of the COVID-19 crisis. This resilience is a result of distinctive features of our group. The nature of our services, we are not in the nice-to-have category of services, we are mission critical. Our customers do need us to operate their businesses, and this is mirrored in the quick recovery we saw in Q3.The strength of our customers, our policy of discipline and selectivity results in a broad, diversified, high-quality portfolio mirrored in an excellent cash collection so far this year; then the good balance of our geographical footprint; and finally, the discipline and the reactivity embedded in our organization and our long-standing focus on health and safety.So we do confirm our outlook for the second half of the year of a trading close to last year's level with only a limited increase in year-end leverage. This means that we do not anticipate a material impact of the most recently decided COVID-19 restriction as they are not preventing us from working and from accessing our sites. Lastly, we are welcoming the fact that recent stimulus plan announcements in France and in Germany are very much supporting energy transition and connectivity and are, therefore, clearly supportive of our markets. They will contribute to our future growth. SPIE is well positioned. 35% of our services substantially contribute to climate change mitigation per the EU taxonomy, and we have a leading expertise in information and communication technologies.So turning to figures on Slide 9. In Q3, SPIE's revenue was very close organically to last year's level, down only minus 1.8%. On a reported basis, we were down minus 3.1% due to the disposal we made in the U.K. in March. Our EBITA margin for the quarter was only 50 basis points below that of Q3 last year at 5.6%. Over the first 9 months, our performance is proving very resilient with a minus 6.4% organic decrease in revenue, a minus 5.5% total revenue contraction, including growth from acquisition and net of disposals. EBITA margin was 4%, with the year-to-date decrease narrowed to 130 bps compared to 170 bps gap in H1.On Slide 10. The group organic contraction was limited to only minus 1.8%, which is a result of a fast and strong recovery in France post lockdown with a limited minus 2.8% contraction in Q3 despite a high comparison basis. We benefit from our geographical exposure to Germany & Central Europe which grew plus 0.8% in Q3, including a very strong 4.6% in Germany alone. Revenues in North-Western Europe at minus 2.8% (sic) [ minus 7.5% ] and minus 9.3% in Oil & Gas and Nuclear with a similar decrease in both activities. Impact from acquisition and disposal was negative by 0.9% due to the sale of our mobile maintenance activity in the U.K. in March. We haven't completed any acquisitions since the beginning of the year. However, M&A activity has resumed actively, and we're now in negotiation for a couple of interesting targets.Looking at France on Page 11. In France, the activity rapidly returned to normal levels through the quarter with a good recovery momentum in all divisions. This is all the more remarkable as the basis of comparison was very high with a 7% growth in Q3 2019. Telecom infrastructure services continued to be very dynamic. Business levels were robust in Industry Services, Technical Facility Management, Commercial Installation and Information and Communication Services.In Germany & Central Europe, Slide 12. Germany delivered a very strong quarter with organic growth of plus 5 -- 4.6% -- plus 4.6%, reflecting solid underlying trends in the country where COVID-19 impacts on our activities have been limited. Transmission & Distribution services remain very dynamic, firmly driven by energy transition investments. Activity levels in Technical Facility Management was solid, notably in the logistics sector. Revenue in other geographies was down overall, affected by project phasing in Hungary and lower activity in Austria, while Poland did record a good growth. On Page 13, revenue in the North-Western Europe segment recorded a limited 1.9% organic contraction in Q3. As explained, revenue decreased by minus 7.7% on a reported basis due to the disposal of the U.K. mobile maintenance activities in March 2020. In the Netherlands, we continued to benefit from solid underlying trends, particularly in Technical Facility Management and in Energy Infrastructure driven by the energy transition as well as in the critical area of Water Management, as we did show earlier through our example. These good trends helped to offset headwinds in Industry Services, where the demand from our petrochemical clients is currently quite low. Revenue in the United Kingdom showed resilience in Q3, underpinned by data center contracts. In Belgium, post lockdown recovery was rapid.And then Oil & Gas and Nuclear, Slide 14. In a difficult market environment, Oil & Gas Services continued to show resilience, mirroring our focus on recurring maintenance and operations as well as a good balance between upstream and downstream activities. In Q3, the high single-digit organic revenue contraction was compounded by a negative currency impact due to the weakening of the U.S. dollar. In Nuclear Services, Q3 revenue was lower year-on-year as the high Grand Carénage workload initially planned in H2 was spread into 2021, and then there is also a ramp-down of the Flamanville EPR project. The COVID crisis has not led us to lower our engagement in terms of responsible and sustainable management. And we remain committed to valuing human capital. This is key in our industry. And as you see on Slide 15, health and safety remain our #1 priority. Our strong safety culture has been instrumental in dealing with the COVID-19 situation. SPIE France received 10 awards and in particular for COVID-19 safety measures. It is really easier to implement this kind of measures when the whole organization has a deep sense of safety and safety measure implementation. We continue to recruit and train young talents, and we welcomed 800 new apprentices in France and in Germany. Our 2020 employee shareholding plan was once again successful and largely subscribed with an estimated total investment above EUR 20 million. And lastly, we received the governance award from L'AGEFI for Board of Directors' composition.Now I will hand over to Michel, who will comment more details our Q3 and 9 months figures.

[Michel Delville, Group Chief Financial Officer]

Thank you, Gauthier, and good morning, everyone. I am on Slide 17. As Gauthier already pointed out, we achieved a fast and strong recovery in the third quarter with a revenue of EUR 1.7 billion and EBITA margin of 5.6%, both close to last year's level, as you can see on this chart. Over the first 9 months of the year, just below, you see that sales reached EUR 4.7 billion and EBITA EUR 190 million with a margin of 4%, down by 130 basis points. As you can see on Slide 18, excluding ForEx, our Q3 revenues declined by 2.7%. This includes a limited plus 0.3% impact from last year's acquisitions as most of them were made in the first half and minus 1.2% impact from the disposal of the U.K. mobile maintenance activities deconsolidated since March 2020. On an organic basis, revenue declined only by 1.8%. Let's move to Slide 19. It is the same bridge but over the first 9 months. Revenue is down by 5.5%, which again shows remarkable resilience in the current context. Impact from acquisition is more significant over the period at plus 1.8% related to the full period contribution of acquisitions made last year. Overall sales declined by 6.4% organically due to the Q2 revenue shortfall, as you know. Let's move to Slide 20. It shows our EBITA by quarter. Q3 is almost back to normal with an EBITA margin at 5.6%, only 50 basis points below that of Q3 2019. This is quite a recovery if we compare with the Q2 EBITA margin that you can see on the left. Over 9 months, EBITA margin reached 4%, down 130 basis points versus the same period last year. This year-to-date gap has narrowed compared to H1, I remind you that it was 170 basis points, and this will continue to narrow in the fourth quarter.Thank you, and I will now hand back to Gauthier.

[Gauthier Louette, Chairman & CEO]

So regarding the outlook on Slide 22. As I mentioned in my introduction, the COVID-19 situation is currently worsening, and most European countries have recently stepped up COVID-19 restrictions. However, in a country like France, there is a major difference this time around as the goal is to preserve both health and the economy, and therefore, business continuity has been ensured for our type of services. So we do not anticipate significant impact. These restrictions do not change our outlook for the rest of the year. And we confirm our guidance given in July of the trading in H2 2020 close to last year's levels. Our Q3 numbers do point in that direction. In particular, H2 revenue is expected close to H2 2019 level on an organic basis. H2 EBITA margin is expected within 50 basis points from H2 2019 level. Cash generation is expected to be robust and has been indeed robust so far despite the context, leading to only a limited increase in year-end leverage at maximum 3x compared to 2.7x last year. And then this leverage should decrease significantly next year.Before moving to Q&A session, I would like to give you a bit of detail, and this is on Slide 23, on how SPIE is positioned to benefit from the recently announced stimulus plans in Europe. These plans are supporting energy transition and connectivity, and many of our services are going to be involved across our 4 markets.In energy, where we participate actively to the large-scale transformation of the electrical grid in Germany required by the energy transition, we also install and connect additional renewables production capacity.E-fficient buildings, where will contribute to better energy efficiency through renovation of HVAC and electrical system. We also enable the digitalization of buildings through our ICS divisions, and we are instrumental in the development of data centers.Smart cities, where we key -- we are a key player in e-mobility with installation and maintenance of charging infrastructure as well as the rollout of mobile and fiber telecom networks. And finally, industry services, where we help our clients to optimize our processes in terms of energy consumption as well as the overall competitiveness through Industry 4.0 solutions.Obviously, it is too early to quantify in terms of the impact that these plans will have, but they will contribute to our future growth. They do not require any adaptation or change in strategy from us. We have the relevant teams and skills, we have the services and solutions readily available and we have good market positions. So we are ready.To conclude and before I turn to Q&A, I would like to stress that this year is a troubled and difficult year in many respects, but it is also a year where SPIE is really showing the strength of its model, the quality of our people and of our organization, the mission-critical nature of our services, the remarkable resilience of our business, the quality of our customer base and, last but not least, the robustness of our cash generation. These are key assets to get through this period of uncertainty and successfully pursue our path of growth and value creation.So thank you very much for your attention, and Michel and I are now available to answer your questions.

[Operator]

[Operator Instructions] And we do have a few questions in the queue. The first one comes from the line of Christophe Chaput from ODDO.

[Christophe Chaput, Analyst]

Yes. Three questions from me, please. The first one is could you give us the amount of extra costs related to COVID that you were able to offset with price increase in Q3, please. The second one is how much of the extra cost that you still -- are you still suffering from, I mean, in Q3? And the last one is regarding nuclear, what is the size of the sale that is going to be delayed 2020 to 2021.

[Gauthier Louette, Chairman & CEO]

So regarding the cost of the COVID measures, there's a direct cost which is clearly identifiable, which is the cost of equipment or the protective equipment. We had to install this individual or in the way we equip the offices or the vehicles, et cetera. So this is roughly EUR 11 million so far. And we have still a bit to go, but now it is -- we have a good view for the year.And then there's a more hidden cost in terms of productivity because sometimes you cannot put everybody in the same building. You have to ensure that they access the site at different times, et cetera. And also in terms of you need sometimes more vehicles to transport people and that's also extra cost. And so some loss of productivity is involved. But it is more difficult to quantify, obviously. I think it does reflect also in the small gap of margin we were still seeing in Q2. Clearly, with time, the intention is to pass this cost to our customer. And every new offer we give, every renewal contract we gain, we take this into consideration. But as you know, we have also multi-annual contracts where the negotiation are sometimes rapidly successful, sometimes take more time. Hence, this small gap going forward which we'll try to reduce also in the year to come.Regarding nuclear, so this impact at group level are not significant. For the nuclear industry, I mean, roughly, we are not planning to have a decrease of the magnitude we have shown for the 9 months. And an effect of that is clearly due to the shifting of the Grand Carénage activity. As you know, what happened is that EDF was planning a high level of activity of Grand Carénage in the first half. Due to COVID, we had to stop all the activities at some stage. They only allowed access to their own personnel in the nuclear plant.And then the plan, what they told us, that we would recoup this activity in the summer and the second half of the year. And then eventually, they established that this would be too much work for us but also for them in terms of supervision and organization, and so they made the decision to shift it to next year. So we -- this is not completely lost. This will be done next year. I think it was a reasonable decision from EDF, and we had intense talks with them because we were also thinking that this would be -- put a lot of stress on the activity, which are very specialized and high barriers to entry. This is the situation. And on top of that, we will lose maybe 1% of the growth, but this was planned due to the decrease in Flamanville.

[Operator]

The next question comes from the line of Sylvia Barker from JPMorgan.

[Sylvia Pavlova Barker, Analyst]

Could I ask your trend in September relative to the Q3 overall? And maybe if you can make a comment on October as well. Then on Germany & Central Europe, heading into Q4, obviously, Germany is growing really well in Q3, can you maybe talk about how long these projects with TenneT will continue for? Obviously, they're quite long term, but if you can comment on that. And then on the other side, just the Hungary phasing, when do you expect that to improve? And then finally, just if you can give another comment on M&A and whether you're seeing any activity there?

[Gauthier Louette, Chairman & CEO]

Yes. Well, regarding Germany, we had a very strong growth in Q3, but we say we'll not advocate -- I will not promise this sort of growth, 4.6% every quarter. But nevertheless, this level of activity is strong, thanks to our positioning. And clearly, the transmission of -- and distribution activity is very active at the moment. And it has not been affected at all by the situation. And the trends are there to stay and last. So it may fluctuate from one quarter to the other because of the phasing of projects, et cetera, but it is a strong underlying strength. And regarding our e-fficient facilities business in Germany, it has proven very resilient as well. So it did really -- these are the 2 effects that we helped achieved. This is very satisfying growth in Germany. And these trends are long term, so it's -- but again, it does fluctuate from one quarter to the other, and it fluctuates even more from one month to the other. So we -- the changes from one month to the other are not very relevant. Trading so far is way in line, but we remain very cautious and pay a lot of attention to the development.Regarding Hungary, it is a small activity. So obviously, the impact of project phasing in high voltage brings more swing, but it doesn't have a lot of significance midterm. And regarding M&A, during the various lockdowns and with all the attention devoted to maintaining or restarting the business and establishing all the safety measures together with the customer, both from our side and from the vendor side, there was no bandwidth for a lot of talks and negotiations. Now it has -- since summer, it has resumed, and we have a number of interesting targets in France, in Germany as a priority, as you know, and also in the Netherlands. And so we are working on them at the moment. I do have good hope that we will be able to conclude 1 deal, maybe 2, before the end of the year.

[Sylvia Pavlova Barker, Analyst]

Okay. So just on the monthly, was your comment on Germany? Or can you comment on the group trends into September, October?

[Gauthier Louette, Chairman & CEO]

Well, all together, we -- as I said, it's hard to derive any significance from a month, but we do not see -- and I say -- I'm not saying we're going to do 4% in Q4, but we do not see a shift in terms of -- or a major shift in terms of trends in Germany so far. So it's...

[Sylvia Pavlova Barker, Analyst]

Sorry, sir, it was just that the question was on the group, not on Germany.

[Gauthier Louette, Chairman & CEO]

The group.

[Sylvia Pavlova Barker, Analyst]

Is it the same for the group?

[Gauthier Louette, Chairman & CEO]

It's similar. It's the same. We are -- the fact that we are confirming our guidance means that we see a stable evolution for the third quarter, no major hindrances.

[Operator]

Next question comes from the line of Chirag Vadhia from HSBC.

[Chirag Vadhia, Research Analyst]

Just on the outlook going into 2021 and talking about the significant deleveraging that the business will do, could you give a bit of detail on your sort of cash flow margins and growth that you're looking at in terms of how significant the deleverage may be into '21? And secondly, I appreciate it's Q3, but on the working capital, could you give us a sense of how the advance and down payments are trending at this moment in time? And if customers are being more cautious going into next year?

[Michel Delville, Group Chief Financial Officer]

Yes. First of all, on the working capital, it's true that, as Gauthier said, we had very good cash collections. And as you know, we don't communicate on the debt at quarter, but I think it's important to mention during this difficult times that the cash income is still good. Whether it comes from simply receivables collection or advances, everything is fine. And this is one -- also one of the reasons why we have confirmed our guidance on the leverage at year-end this year.So of course, as you know, since we've had a significant impact on the margin and on EBITA in the second quarter, the -- we have said in July that the leverage will go slightly up at the end of this year. Now it's mechanical because in terms of debt, the debt will continue to decrease. But on the ratio, the impact on the second quarter will remain. Now moving to next year, it's clear that -- we hope, of course, to have a year -- I would say, to have a -- to avoid the crisis we had in the second quarter due to the COVID sanitary measures put in place in several countries and specifically France. So if we have a normal trading next year, it's clear that, mechanically, you will see the deleverage since we will, of course, continue to deliver our cash flow. And we always have this 100% cash conversion objective. So it will mechanically put our leverage down. And if you remember, we had the objective to be below 2.5 this year. So of course, this will not happen due to the COVID crisis, but we can expect this to happen next year. So we did not gain more than that for next year, but it's clear that the objective of the company will remain to achieve a strong cash conversion as we hope to do it this year as well.

[Chirag Vadhia, Research Analyst]

And just to check, are you getting a sense that customers are more cautious going into next year?

[Gauthier Louette, Chairman & CEO]

Sorry, I didn't understand well the question.

[Chirag Vadhia, Research Analyst]

Do you get the sense that customers are feeling more cautious about the services that they want from SPIE going into next year?

[Gauthier Louette, Chairman & CEO]

It's early to say. As we said, what we do is mission-critical, so obviously, there is a strong element of stability. And then obviously, we have areas of the economy which are not going to restart any time soon like aeronautics. So these -- some areas are obviously depressed and will remain depressed. None of them represent a strong percentage of our -- of activity, but we'll be -- we'll see the context and the mood of our customers very carefully. Well, I think the current situation, it is only marginally reducing the stress on technical resources, so we see that our customers, they do need us.

[Operator]

The next question comes from the line of Simona Sarli from Bank of America.

[Simona Sarli, Research Analyst]

Just a couple of questions from my side. So you're talking to in your presentation about the investments in green energy both in France and Germany. I appreciate it's still early days, but have you seen probably a pickup in negotiation activity for some potential new contracts related to that? And also, if you could please give an update on the competitive landscape and pricing dynamics.

[Gauthier Louette, Chairman & CEO]

Well, some trends remained very robust regardless. So clearly, when we talk with our customers in the energy world, transmission and distribution, they have a lot to do. There's the transformation of the grid in many countries, in Netherlands, in Germany, in Poland, in Belgium. It's something which is happening very strongly at the moment. And the talks we have with our customers at the moment are more around capacity and our ability to support them in making these investments happen on the ground. So these are very robust trends.On top of that, now the drive to electrical recharge of vehicles, when something which is very strong in Germany and in France, as an example, with billions which are dedicated by the new economic plans to be invested in this sort of activity. So this is very, very supportive, and it gives a strong underlying trends.Then obviously, looking at the industry, there are also deep shifts in the industry. Clearly, we're looking at a decent perspective in the area of pharmacy, in the area of food industry as well. So it's -- altogether, it is helpful to maintain our level of activity.So I'm not saying it's going to be easy. Clearly, and as I said, a number of customers are under pressure, but there is a very resilient base to that.

[Operator]

The next question comes from the line of Charles Scotti from Kepler Cheuvreux.

[Charles-Louis Scotti]

Yes. A few questions from my side. The first one, can you tell us how confident you are right now on getting back to a 6% EBITA margin as of 2021? My second question on e-mobility, can you remind us how much sales do you generate from e-mobility right now? And what could be, in your view, the potential, let's say, in 3 or 5 years' time?And finally, can you remind us what is the EUR 46 million other nonrecurring items that have been below the EBITA adjusted line?

[Michel Delville, Group Chief Financial Officer]

Maybe I will start with the third question. The EUR 46 million, they were already there in H1. It's the loss related to the sale of the mobile maintenance business in the U.K. that was done in the first half. So it's the difference between the selling price and the book value including the goodwill. So it was a negative impact, noncash mostly. So I think the cash elements were about EUR 10 million. But all the rest is simply book value and the difference between sales value. And of course, you still have it in the account at end of September, but it was there already in H1.

[Gauthier Louette, Chairman & CEO]

Yes. And regarding the margin, what we said in the past that we keep the target to -- coming back to 6% sometimes in 2021 and with also the pass-through of the additional cost and obviously also the -- adjusting the structure in a number of areas linked to the change in turnover. So yes, it does -- it is our aim to restore historical margins at some point in 2021. And regarding e-mobility, clearly, this market is growing fast, and we have given a few examples. So we're looking at something, which at SPIE level, we would be talking probably EUR 20 million this year and looking at probably doubling the size over the next 18 months. But they increase faster. This is my first port of call.

[Charles-Louis Scotti]

Just to confirm, you said EUR 20 million?

[Gauthier Louette, Chairman & CEO]

Yes.

[Operator]

The next question comes from the line of Rory McKenzie from UBS.

[Rory Edward McKenzie, European Support Services Analyst]

It's Rory here. Just 2 from me, please. Firstly, in terms of the new COVID restrictions, I appreciate it's, of course, early. But are you worried about any customer delays or cancellations? I remember that in Q2, it wasn't just that government prevented you from going to sites. Some customers were obviously cautious about letting external people on sites as well. And so obviously, that might be a risk factor that comes back in.And then secondly, again, I appreciate it's too early to maybe talk about the stimulus benefits for next year. But in terms of new growth areas, there's a lot of talk around companies upgrading or installing or retuning new HVAC systems to improve hygiene, to improve air circulation. Is that something that you're exposed to? How big is that business? And is that a positive driver that you're currently seeing?

[Gauthier Louette, Chairman & CEO]

Yes. Well, regarding the first part of your questions, what -- with France, we work for public buildings. Like we work -- we maintain the Musée du Louvre in France or the Imperial Museum in London. And these buildings, they might get closed to the public. Some of them, no. Some of them, yes. But nevertheless, you still need to ensure all the basic functions of the building and especially in the museum, temperature, hygrometry, ventilation, et cetera.So regardless -- and the same for office buildings, the office might be as good as empty, but protection systems, lighting, minimal ventilation, et cetera, access control, all this must be maintained. So what we have seen so far, that -- and I was mentioning the resilience of our e-fficient facilities business in Germany. It has been the same in France. I've been impressed by the resilience of our facilities business in France.Obviously, what you do lose a bit is churn work, additional work which you were planning to do. Well, they might be postponed because there's less supervision also from the customer side. In some areas, it was the contrary. Because the building was empty, the customer was happy to proceed with works more rapidly and efficiently than it has been performed in an occupied building. But all together, it does put some pressure on the additional works. So far, we have shown quite a good resilience in this regard.And regarding HVAC, I think the first -- we had a lot of talks with our customers regarding this. And clearly, you have several aspects. First, you see that ventilation becomes very important. So some areas need more ventilation as they had, so additional installation. And that is the way you operate them. So the first reaction of the customer was to go into the mode where you renew the air completely as opposed to filter the air and reuse it which saves energy. So you have first reaction where you do not reuse the air, it is new air all the time, which is costly in terms of energy.So now after that, you have to work on improving the filtering system, et cetera, improving the monitoring. So these are modifications on the control and command of the system or on the filtering system. But I think that all together, it brings -- and sometimes not immediately, but it supports the trend to more HVAC and better HVAC in buildings and in factories as well.

[Operator]

The next question comes from the line of [ Edward Donohue ] from One Investments.

[Unknown Analyst]

A few questions from my side, if you don't mind. Can you just -- actually, just going back on the last question when you were saying on the HVAC. Are you saying that you're actually at a preliminary discussion stage rather than actually saying business being awarded, and you'd expect that more to be in '21? I mean if you looked at a normalized run rate in that business, would you see a definite step-up for '21?

[Gauthier Louette, Chairman & CEO]

Yes. I'm not saying it will be a step change, but it will definitely support the trend. And this modification -- or some of them, you can do rapidly. Some of them, you need to discuss more with the customer to really ensure that you are coming up with the right solution for him. So not everything has been done so far. There's a lot still to be done for next year.

[Unknown Analyst]

Okay. And then just the point you made earlier with regard to pass-through of costs on the contract renewals, I mean, if you looked at that on a hope for 100%, what are you actually getting as a scorecard as contracts come up for renewal and being able to pass through the extra costs? And any kind of pushback you're getting from clients on that front?

[Gauthier Louette, Chairman & CEO]

For renewals, it will be included in our bid. So we either lose or we win. But if we win a contract, the cost would have been passed through, per definition. So the question is more on the existing contract where we still have 1 year to go or 2 years to go and how we deal with that.But all together, we have had a decent attitude from our customers. Some of them have been very upfront especially, for instance, in the FTTH world, the operators were really keen that we resume work very, very fast. And it happened even as soon as early April. And in France, we will resume work on FTTH. And then they were very forthcoming in terms of compensation for the customer. Some of them -- some of the customers have been a bit less helpful, but we have negotiations ongoing. So at some stage, we'll reach probably a level of, I would say, 70%, 80% of the existing contracts, and we'll see 100% of the new contracts.

[Unknown Analyst]

Great. And then just on the activity level. I mean just to get an idea of what happened in Q3 versus the earlier part of the year and the lockdown, I mean how much of the activity pickup was restart versus new projects coming in and, therefore, the commercial pipeline feeding into the business? And what are you actually seeing on discussions toward activity level of business being awarded going forward?

[Gauthier Louette, Chairman & CEO]

Well, it's -- obviously, it's early to tell for the whole of 2021, and we're working on the budget exercise at the moment, which is still always a bottom-up exercise. And it's not easier this year on the contrary to work on the budget and engage with talks with the customers. And there is more uncertainty and a bit less visibility, a bit less, not too much, but a bit less visibility than in the past. But all together, so far, our order book evolves very satisfactory. Our order intake and our order book for next year, they evolve satisfactory.

[Unknown Analyst]

When you say satisfactory, how -- I mean to give us some sort of quantification of that, how would you rank that? At the same time last year, if you were looking at the quality size, embedded margin and pricing in the order book and from a sort of client base, just to give more of a feeling where you are now going forward as opposed to '19 looking into '20, just a sort of year-on-year comp.

[Gauthier Louette, Chairman & CEO]

It's difficult to be more precise of what we see in terms of order intake. So far, it is in line with our forecast, and that's also what allows us to confirm our guidance.

[Unknown Analyst]

Okay. Fair point. And then just a last one. I mean just looking at the pricing and your internal inflation and largely wage inflation especially in a market like Germany, I mean despite the unfortunate act of the virus overall. As you point out, the German activity is strong. There's been a tightness in the engineering market in the past there, and you've had issues on recruitment. How are you actually seeing pricing versus wage inflation?And then actually, I apologize, the final question also would be on France. Municipal elections are in the bag now. Are you seeing any change in budget levels or allocation of those budgets to projects going forward? Any implications from actually the virus with reallocation of funds?

[Gauthier Louette, Chairman & CEO]

Well, regarding the price and wage situation, in Germany, as you know, the year before, there was -- because the automotive industry was going so well, there was a strong push from IG Metall, the main metallurgy union, for high pay increase. And all our transmission and distribution activity in Germany has a collective labor agreement linked with IG Metall. So we had a significant salary increases at the time which we did manage, again, to pass on to the customer, not everything immediately. But as you have seen, the margins in Germany did hold decently even at this stage. Now the situation is a reverse because IG Metall is being very reasonable on salaries because of the situation of the automotive industry. And so the discussions are more on the working conditions, the number of products, et cetera, the duration of work and working hours but less on the salary itself. So it is a situation in this regard for part of our business. The other part of our business, it's another union. And since the business has been fairly resilient and the technical resources remain slightly less scarce than before but not a radical change, but we still have discussion with this union and it's not settled yet. Main thing is altogether, less pressure on salary inflation in Germany, slightly less pressure on technical resources and we have confirmed our ability to pass on the wage inflation to the customers.Regarding local authorities in France, but again, in a way, they are also supported by the plan to support the economy. But the election issue, as I said in the past, it never -- in our case, it's never a major thing that you really see a dent in our revenue due to the local elections. And so no, I would not identify any meaningful trend in this regard. And I think we suffered -- at the first lockdown, we suffered from the fact that our customers had vanished. They were working from home and sometimes not well-enough organized. But now the second wave, it's better, and so we can maintain meaningful dialogue and proceed the tenders, et cetera.

[Operator]

The next question comes from the line of Nicolas Tabor from MainFirst.

[Nicolas Tabor, Analyst]

The first one would be quite straightforward. I wanted to have your feeling 1 month into Q4, trying to assess how confident you are you can manage to post positive organic growth in the fourth quarter? And then maybe I can follow up with the 2 other questions.

[Gauthier Louette, Chairman & CEO]

Well, really, we confirmed the guidance, but it's difficult to be even more accurate and to pinpoint an organic growth number right now. So I think we understand the context well. And on the fact that we confirm our guidance, I think it means that we have a decent level of visibility, but -- and that we are confident. But it would be hard to pinpoint an exact number.

[Nicolas Tabor, Analyst]

Great. Great. And then going back to maybe Germany & Central Europe, I wanted to try and understand. We've seen this strong 4.5% organic growth in Germany, and you said that you were not guiding for the same level over the coming quarters. But when I look at the comparison basis, it's quite easy in Q4 and in H1 next year. So is there something we don't see that will hinder your potential continued growth especially as T&D is not impacted by COVID-19? And then for Central Europe, should we expect the continued phasing of Hungary and the same level of decline organically over the next Q4 and Q1 quarters?

[Gauthier Louette, Chairman & CEO]

It's -- I always say that quarterly organic growth keeps an element of volatility. I'll give you one example. We have gained a large data center in Germany. We are hoping to perform, let's say, EUR 15 million of production on this data center in -- starting September, so over September until the end of the year. It has been postponed. So there will be an element of the data center but not the EUR 15 million. And it will not start before November. So the other thing, it happens all the time because the customers are not ready, because there's less hindrance in terms of permit or god-knows-what. And so we have a lot of minor impact like this which compounded the organic growth of the quarter. So -- and some of them do not mean that there is a shift in the underlying trend or whatever. It's just a number of impacts like this. So I cannot be more accurate at the moment on the growth for the whole year.

[Nicolas Tabor, Analyst]

Even if we look at, say, the next 9 months in a broad average?

[Gauthier Louette, Chairman & CEO]

I'm not sure I understood that.

[Nicolas Tabor, Analyst]

Well, I just meant that the [ 4% basis ] will be quite easy over the next 9 months, so I just wanted to know if we don't look at specific months or quarters but, let's say, over the next 9 to 12 months.

[Gauthier Louette, Chairman & CEO]

Yes. The comparatives might be easy, but the situation is not easy. I cannot say much more at the time.

[Operator]

The next question comes from the line of James Winckler from Jefferies.

[James Peter Winckler, Equity Analyst]

Most of mine have been answered. Just wanted to quickly check if -- in the U.K., last year, you mentioned that a lot of your framework agreements had already been pretty much reached the bottom. And I'm wondering if you see meaningful recovery there. And then secondly, I see that the Grand Carénage budget, I believe, was up quite substantially, I think it was about $4 billion. I'm wondering if there's any positive implications for your work volumes and margins in Nuclear as a result.

[Gauthier Louette, Chairman & CEO]

Well, regarding U.K. volumes, the situation is obviously tense, but we have a good visibility because we are -- we have a good activity in data center. We have our works in PSI for schools which have remained very stable and even a bit more work linked with the situation. And we're also working infrastructure which are growing decently. But obviously, the situation in U.K. is not simple.And we are helped by the fact that we have done a major reorganization this year. And we've lowered our structural cost base very significantly. And so we are able to be generating cash and producing a small margin with a much lower turnover. So there's a lot of work that's been done in the U.K. this year, and it allows us to be more resilient going forward in a situation which doesn't look easy with also a Brexit of some kind looming.Regarding Nuclear, I think both of shifts in Nuclear and this year was obviously peculiar for the reasons I was mentioning. We're looking at a strong year in Nuclear and going to be looking different.But the midterm trends remain the same. The Grand Carénage activities are -- they are proceeding, they are proceeding well. Our position with EDF is very strong, and we're really one of the, if not the major player for the electrical works, with excellent relationship and very satisfied of what we do for them. And they also help us to expand a bit outside of electrical work. So I see a very good situation going forward for the Nuclear business at margins which remain very satisfactory.

[Operator]

The next question comes from the line of Laurent Gelebart from Exane.

[Laurent Gelebart, Financial Analyst & Analyst of French Mid Caps]

Just one question regarding the ongoing disposal or the possible disposal of energy contracting activities or to attract buyer are being floated. Do you believe, if that happens, it will be positive for market discipline in terms of pricing, notably in France?

[Gauthier Louette, Chairman & CEO]

I think -- I do share your hope, Laurent. I think that clearly, when you look at the margins of this activities, they are half the margins of SPIE, if not less. And clearly, this is something we have been complaining about in the past very often. So clearly, if there is more focus on margin and cash generation with a new owner who will be more focused on service activities under the present ownership, which is more of a conglomerate and more difficult to really focus, I think it will be very helpful for the market altogether, absolutely.

[Operator]

[Operator Instructions] The next question comes from the line of Charles Scotti from Kepler Cheuvreux.

[Charles-Louis Scotti]

Yes. Sorry, I have one quick follow-up question. Can you help us to quantify how much of sales have been delayed in the Nuclear business and just give us an idea if it's substantial?

[Gauthier Louette, Chairman & CEO]

No, we're talking probably -- and this is included in our guidance, but we -- I think we -- under normal circumstances, we would have probably been doing maybe EUR 10 million to EUR 15 million more.

[Operator]

Thank you. There are currently no further questions in the queue. [Operator Instructions]

[Gauthier Louette, Chairman & CEO]

Well, if there are no further questions, thank you all for your attention this morning. And we will continue to work hard on delivering on our results and cash. And we all stay healthy. Take good care of yourself. Have a good day. Bye-bye.

[Michel Delville, Group Chief Financial Officer]

Thank you. Bye.

[Operator]

Thank you for joining today's call. You may now disconnect.