Solutions 30 SE (S30) Earnings Call Transcript & Summary

Hello, and welcome to Solutions 30 Full Year Revenue 2020. My name is Stefano, and I will be your coordinator for today's event. Please note this conference is being recorded. [Operator Instructions] I will now hand over to your host, Gianbeppi Fortis, CEO of the company, to begin today's conference. Thank you.

Thank you. Good afternoon, everybody, and thank you for being with us today for our presentation of 2020 revenues. I'm here today together with Amaury Boilot, our CFO. Let me start going to Page 3, please. Okay. As everybody know, 2020 has been a very special year with an unprecedented virus that has hit all the economies across the board. We have been severely hit in April and May this year, but then we have recovered very fast. And at the end of the year, we can say that we have been gifted because we have registered about 20% growth for the year. Almost a little bit organic, 14% organic. And the growth in the third quarter 2020 has been of 20%, 17% organic. On top of the strong performance of 2020, we have also had some great commercial successes across all of the geographies. That has been the case in France, where the telecom activity has been very, very strong just after the first confinement beginning in June, the activity has grown very significantly. Then we have had a great success in Belgium, where we have signed a very interesting contract with Fluvius, allotted utility to deploy their smart meters. In Italy, we have just been awarded a very interesting fiber deployment with Italy that is launching a fiber plan very similar to the one that France has started in 2017. We have also had good successes in Spain, in particular, in the field of 5G, where we have begun working with the main 5G and mobile manufacturers. And also in Poland, where we have won a small 5G projects, small in size, but very interesting because we managed to win the first 5G activity for the country organically with Orange. We have also opened a new geography and important geography around the end of the year, acquiring a company, a small company in the U.K., Comvergent. It's a company with skills in mobile networks. And therefore, for us, it's an entry point in the 5G business, knowing that U.K. as all of the other geographies is launching an important plan to improve the fast internet of the country, both landline and mobile. What we are also seeing, and we'll see it in more detail in the rest of the presentation is that all of Europe is launching significant plans to get the economy growing again after the virus. And that -- those applies, in particular, to internet, fast internet. That's particularly important because we all rely on our internet to work and stay in touch with family. And also energy, green energy and the renewable energy, there is a big investment plan that is going across Europe. So these 2 trends in energy and telecommunications are going to be the main drivers for 2021 and also several years in the future. Now 2020 has been a particular year also because we have moved the company to the regulated market and entered the SBF120 Index that was during the summer. And then unfortunately, the year has not closed very well with an attack, a short sell attack that we have received in December. And we will also talk about that in the rest of the presentation. Next slide, please.

Yes. Thank you, Gianbeppi about this attack that we need, obviously, to mention today, being sure that over the last years, the group has made significant efforts in order to improve its transparency, to improve its governance, to improve its compliance but also its processes in terms of risk management. The group will continue to invest a lot in that field in order to improve its practices, we will make everything possible in order to build barriers, to protect the company and to prevent future attacks in the coming years. But now in the current context, in order to put an end to all the allegations coming from this anonymous report or from short sellers, the Supervisory Board decided to launch an independent audit. So Deloitte was mandated in order to supervise this overall audit meaning that they will cover all the allegations regarding accounting and the reputation of the company and its management. They will be assisted by the experienced team of Didier Kling Expertises and Consulting, and all along the process, the Supervisory Board has made all the necessary checks and controls in order to make sure that the independent integrity, the experience of this overall auditing can be questioned at any moment. While this audit obviously will cover all the allegations that were containing the anonymous reports, but also the allegations received later on, which only aim at destabilizing the company. As previously stated, the company decided to file a claim with the PNF. We informed PNF, and we are now filing complaint for defamation regarding the latest allegations received. During this period, which is not pleasant for us, but also for our investors, we'll keep -- and as we have always done, we'll continue to have an open dialogue with our long-term shareholders and our long-term investors. And it shows that this story, which impacts currently our stock price has no impact on our operations. Our teams are always focused on delivering very high-quality of service to our customers, and they are currently focused also on delivering the growth that we see for the next coming years. If we go on the next slide, we just want to be very clear. Actually, all these allegations are based on the profound ignorance of the group. I just would like to remind 3-key pillars of our business model. If you look at our group at the end of June, our revenue can be checked very easily, 96% of our revenue that we generated through large contracts that we have through large Tier-1 European telco operators, large European utilities, or large European manufacturers of electronic devices. Our cash is also 100% sure. We have 99.9% of our cash position that is held by Tier-1 European banks on the bank account of our European subsidiaries. So all the banking information is very transparent and easily accessible. Regarding our productivity, we already had the opportunity to discuss that many times. Our profitability relies on 2-key factors. One, first one is the digitalization of our processes. And second is the scale we managed to have in all the geographies. So that's the 2 factors which allow Solution 30 to improve its productivity and improve its margins. So that's how we managed to have an EBITDA margin, which is around 15% in the geographies where we have scale, so basically in France and Benelux. And in the other countries, as we don't have this case, we are not able to optimize at the same level the planning of our technicians. We have currently an EBITDA margins, which is below the group's average below 10%. Now if we go to next slide and talk about the activity of the year 2020 on Slide 7. Well Yesterday evening, the group posted a revenue of EUR 814.7 million, up by 19.4%, in comparison with last year. And out of this EUR 815 million revenue, 59% is actually related to our maintenance activity, which corresponds to our recurring volumes of activity. As you can see on this slide, the organic growth has been very strong. Revenue has grown organically by 14% in 2020. And this organic growth was that actually was high in all the geographies, but especially in France, since France increased its revenue by EUR 85 million organically. And that is mainly because of the strong push we had in this country on the FTTH activity. External growth contributed to 5% of the growth this year. Maybe just one word on the -- on our M&A activity 2020. So basically, we started 2020 with one deal in Poland, where basically, we acquired the assets of Elmo, a Polish company that is specialized in the maintenance of the 6 Telecom infrastructures in Poland. Then we stopped all our M&A activity because of the long-term because of the pandemic, and we started again at the end of Q3, making some strategic acquisitions. So obviously, we increased our capability on the mobile activity with the acquisition of Algo in Italy, and Comvergent in the U.K., as mentioned by Gianbeppi. At the end of the year, we also acquired [indiscernible] a small company based in Belgium, which has a very interesting capability for the deployment of smart meters as this is going to be a very important driver of the growth in this area next year. And we also extended our geographic coverage in Germany with the small acquisition of [indiscernible]. On the next slide, you can see a breakdown of our revenue per quarter. So basically, this strong growth and trendy revenue despite the pandemic, once again, is notably explained by the quick recovery we had as from the second half of Q2. As you can see on this graph, we had a small decrease in the revenue on the second quarter, and that was because of the lockdown in all the countries at the same period. And as for May, the activity started again, started very fast, and revenue went back to normal during the Q3, and we even see an acceleration until the end of the year with a very high Q4. Actually, the level of revenue during this last quarter is even about what we actually expected since we reached a new high during this last quarter. Where we posted a 20% growth during Q4 in comparison with the Q4 of 2019, which was already a very strong quarter. We will remain very positive for the beginning of 2021, since this acceleration is mainly resulting from significant investments coming all across Europe in telecom and energy infrastructure. And we'll continue this trend, but we expect this trend to continue for the next months. On the next slide, you can see a split of our revenue per geography. So basically, if you see the next slide, it's very strong double-digit growth, actually relies on a very good dynamic on all the business segments. In France, where we now reached the symbolic threshold of EUR 500 million of revenue in this country. So the performance, as already said, was mainly driven by the FTTH sales, which accelerated on the second half of 2020. In Benelux revenue reached EUR 136.1 million, up by 8.1%. Actually, in this region, the performance was a bit weaker over the Q4. And this is mainly the result of the stop of some of our activities in the Netherlands due to long-term measures at the end of the year. In the other countries, while dynamic is also very good, we posted a revenue of EUR 156.5 million, up by 28%. And actually, in all these countries, we have observed the same dynamics on the telecom activity. Basically, we had a very strong increase in this activity post in the mobile and fixed infrastructure. I will now leave the floor to Gianbeppi that will give you more flavor on business activity.

Next slide, please. Okay. Let me go through the different segments in France first and then the other geographies. And let me comment first the quarterly figures on the right side of the slide and then the yearly figures on the left side. So in France, you can see that the telecom activity in the fourth quarter was very strong, 38% growth. And basically, all of the segments grew with the exception of IT assistance. Main reason being that IT assistance is an activity that we perform for business clients, and at this moment, several offices are closed with people working from remote. So we had a slowdown in that activity in the fourth quarter and all across the year. If you look at the yearly figures, you will see that telecom has been very strong over the full year. It's only fixed line activities, so not 5G yet. It's pure fiber. The IT activity was down by 30% -- 13% during the year, as what I said before offices are closed. Energy was up by 5% during the fourth quarter, but down by 12% over the full year. The reason being that the Linky deployment was stopped for 2 months between March and May, but then the activity got that fast in May. And then we continued to deliver good volumes over the rest of the year. It's important to note that in France, not all of the electricity meters are owned by , which is the main national utility. There is other smaller utilities that represent, I would say, about 5%, maybe a little bit more, but around 5% of the total national number of meters that are now beginning to deploy smart meters as well. And we have won a few of them, which is encouraging because that will give us additional volumes of smart meter deployment in 2021 and also in the coming years. The other activities were growing in the fourth quarter by 5%. But overall, during the year, the decrease is minus 2%. And that is mainly related to the activities for shops that, of course, were closed, most of them -- a lot of them were closed during lockdown. So that is for France. Please, next slide. In Benelux, in the fourth quarter, the telecom activity grew single digit, like the IT activity, almost stable. Energy was down, as Amaury said, because the smart meter deployment in Holland has been stopped in the middle of November because of COVID, and also the other activities, mainly the retail-related activities were down because of COVID. If you look at the picture over the full year, the telecom activity grew over the year, single digit. IT activities were down by 5%, same reason as in France, offices closed. Energy overall is growing during the year. And also the other activities overall are growing. Next slide. Concerning the other countries, we have had a good performance overall in Germany, but with a little decrease of volumes in the last quarter, that was mainly related to COVID that became an issue in Germany in the past month. Italy, in the last quarter, stable activity, slightly growing organically, but still impacted by the deconsolidation of DXC that we sold last year. And overall, the activity is slightly decreasing over the year. Italy has been one of the economies most severely hit by COVID. Spain has had a good performance, even though COVID was hard, we managed to have a good year and a good fourth quarter. Poland is performing well. The integration of the 2 acquisitions made at the beginning of this year, end of last year, went very well. We had some commercial successes as I said at the beginning, and the country is performing well. And then we saw a little bit of revenues in the U.K. for part of the month of December because of the acquisition of the company that we did in December last year. Next slide, please. This is then the outlook that we are seeing for 2021 and also in the coming years, this information was out in the press in the coming months and weeks. I think all of you have seen it, but there is huge investment plans in Europe concerning fast internet, both landline and mobile. There is a big investment that has been voted in the U.K. of about GBP 5 billion to deploy Fast Internet across the country with the rationale of taking fiber everywhere. And then making sure that the population -- the majority of the population is covered by 5G by 2027. France, even though the deployment of fiber is rolling at full speed, has increased the overall spending with some public money, about EUR 0.5 billion to improve the coverage of the rural areas. And recently, Orange has announced a joint venture with an infrastructure fund to increase even more the deployment of fast internet. In Spain, where the penetration rate of fiber is very high, there has been an additional budget of about EUR 4 billion of public money. That has been voted to deploy fiber and also extend the 5G coverage. Germany, that is the latest Country of Europe in terms of fast internet deployment, has also made some decisions, not the main operators, but the new entrants, in particular, Deutsche Glasfaser, that is financed by an infrastructural fund and also a joint venture between Allianz and Telefonica. They are beginning to deploy fiber this year. And of course, we are in talks with them to participate to that deployment. Benelux is also an interesting geography for telecom infrastructure deployment, with in particular, Proximus have been taking a very strong stance in terms of deployment of broadband Internet, both on its own and also through a couple of joint ventures with infrastructure funds. And Telenet, which is a client we know very well, is in talks with Fluvius, the utility with whom we are also working to use part of their infrastructure and deploy fiber in Flanders. And then in Italy, we had the good news of the EUR 210 million contract won a few weeks ago. And that basically is coming from Telecom Italia. That has concluded a deal with KKR and is now investing the KKR money to deploy fast internet across the country. Next slide, please. As I said at the beginning, the other part of the recovery plan is going into the energy sector. And there is an estimation of an overall spend to accelerate the transition towards the energy of EUR 166 billion to be invested in Europe in 2020, which is almost a 70% increase compared to the 2019 budget. So it's a very bold, strong stance taken by the European community to improve the energy infrastructure of the continent and get the economy going again. The segments that are particularly interesting for us inside this global energy investment is always related to e-mobility, the smart meters and then all is related to the distribution of energy, in particular, the smart grid. Next slide. So having said all of that, we are very confident with the outcome for 2021 where we really see a lot of growth drivers coming into play this year. As we said, telecom, energy and then we will continue to deploy our strategy concerning M&A and concerning the consolidation of the market, which means that we are expecting, again, a strong year with double-digit growth and with our target of EUR 1 billion of revenues, getting very, very close. I think we have covered the main topics concerning our revenues. And then the floor is free for the Q&A.

[Operator Instructions] The first question comes from the line of Julien Fouché from the Societe Generale.

Just 3 questions, if I may. The first one, is there an impact on your activity of the more restrictive measures we are seeing in Europe since the beginning of the year? The second is on the U.K. Could you give us more color on the development of the activity there? And do you plan to offer fiber installation services in the coming months? And can we expect other acquisitions in the region? And the last one is regarding the fourth and fifth latest published by [ mediators ] on Monday and this morning. We understand that the amounts discussed in Romania are not material at the group level, but are you able to explain what is going on in Romania? And could you confirm that Solutions 30 has a minority stake in Remote 30 and were you aware that Remote 30 had its bank accounts closed for suspicion of money laundering?

Okay. Okay. Amaury, go ahead.

So regarding your first question on the activity, we actually do not have any impact on the volumes currently. We are -- we have similar volumes in January than during Q4. We -- all our teams are actually running in order to recruit and train people because of the big tender offers that we won in Italy and in Belgium. So that's actually -- we are concerned, but no impact of the current measures for the moment.

Amaury maybe a comment on the letter and what's going on in Romania?

Just one word on the U.K. first, on the activity. Yes. We have ongoing discussions with telco operators there. So we started that last year, even before the acquisition of Comvergent. So with these discussions are ongoing, and we see these investments coming. We may acquire additional businesses. But in this current context, it's quite difficult to travel to U.K. So we want to be safe. But definitely, we are looking at extending our presence in this country, both in the mobile and fiber activity. And regarding your last question about the letter. So basically, all these allegations were already in the anonymous report, the new information coming this morning is about this alleged closing of the bank accounts due to suspicion of money laundering, but we were not aware of that. This concerns a company that is not the company of the group. So -- something that concerns one of our partners. So we are investigating. We are obviously going to including all these allegations in the audit report. What we can say regarding our activity in Romania is that we had a very short experience there in 2019 that we are able to track all the financial flows that were in this company that the contribution of this company called Balkans Shared Service is absolutely no because it was only a company that was recharging costs from suppliers. So no contribution to the revenue. The profit is 100% intercompany related. And when we bought the company, there was absolutely nothing in the balance sheet showing any participation with other companies. So we are investigating on that will be reviewed by the audit. And that's what I can say to these allegations.

I want to add just one little thing. The current activity with this partner is limited to a small support center where there is about 30, 40 people. So all we are doing with this company at the moment is still subcontracting some activities, and we spend about EUR 30,000, EUR 40,000 per month.

Okay. But Solution 30 has a minority taken in Remote 30, right?

I'm not aware of that.

No, it had. It doesn't have it anymore.

We have no further questions on the line. We can switch to the webcast questions.

We have one question regarding the independent audit. So basically, as discussed today, we understand that the audit has a much broader [indiscernible] and between investigations announced last month. Is this correct? Well, actually, the mandate was very clear since the very beginning for both Deloitte and Didier Kling Expertises and Consulting. Deloitte is just supervising the whole process, just to make sure that we have an exhaustive view on all the allegations. But actually, all these allegations are the starting point of this audit. And further investigations can obviously be conducted very independently, if necessary, depending on the findings. We have then one question regarding share buyback. Is the management and main investors buying Solution 30 shares in this period?

I can take this one. Amaury. I think it's no. At this moment, we are just not buying or selling any shares. Basically, we are not moving. It's something we checked also with our lawyers, given the current circumstances, we are just not buying or selling anything. Okay. Then we have a question concerning interest from private equity funds and the fact that we may be looking for anchor investors? Well the answer is yes. Of course, we received interest from several parties. But I would say that at the moment, we are just focused on carrying out the audit, making sure that we give full disclosure to everybody and then move to the next phase.

So we having a question. Is it fair that -- is it fair to say so is that Mr. Didier Kling is fully independent, as your former auditor Grant Thornton business? No, actually, there's no -- absolutely no question about the independence of Mr. Kling and his team. So we are working with Didier Kling Expertises and Consulting, who have absolutely no relationship with these Grant Thornton. I think that this team of very experienced professional and especially Didier Kling cannot be questioned about their independence, about their integrity as well. Didier Kling is President of the National Council of Statutory Auditors. He's also President of the Chamber of Financial Consultants. He is registered expert witness for the Court of Cassation in Paris, also President of the Paris Chamber of Commerce and Industry. So no, absolutely no question. And that was something that was clearly looked at by our Supervisory Board. Then we have another question about the audit. Why is Deloitte not doing the accounting part as well, but why do you need a smaller company for that? Well, actually, Deloitte is reviewing everything, taking apart all the interviews conducted on the accounting side. So be sure that these accounting allegations are rather reviewed twice than only once. So again, having 2 auditors is just a mark of greater independence of a thing in the audit. So obviously, we worked on all the allegations. Then we have a question on the timing of this? Well, obviously, I cannot get precisely when it will be over. What I can say is that this audit already started several weeks ago. That extensive work has already been done. But the auditors are continuing their work and will finalize in the coming weeks, but we cannot guarantee deadline at this stage.

This year, can we expect another increase in the pace of FTTH installations in France? What's the breakdown of sales in the energy sector in France, and when can we expect the results of the external audits? Okay, increasing the pace of FTTH installation in France, what we have seen in the third quarter is that there was a strong push. Because there were about 600,000 installations in Q1, same in Q2, and then 900,000 in Q3. As you have seen, Q4 has been also very dynamic. Which means that overall, we should expect a good growth in the fiber sector in France in '21 when you compare it with '22, especially in the first half. That's the breakdown of sales, maybe that is something you can help with Amaury?

Yes. Well, actually, I would say that 3 quarters, 75% of the revenue is actually related to the Linky smart meters installation. Then we have also maintenance activities on the telecom network and small but very promising activities in the installation of solar panels as well as EV-chargers.

And we expect the results of the external audit in the first quarter of this year. Could you talk about your vision for e-mobility in 2021? Do you have already been a large tender or [ expect an ] answer soon? While we have actually lots of phase leads going on in that sector. Charging cars, charging electrical cars is really an issue for several countries. The manufacturers have begun paying fines in '21. If they do not meet CO2 emission target and particularly Volkswagen has been -- well, has risen to pay a fine already in '21. So we have a very dynamic sales activity concerning charging stations. We have won some contracts in '20 that we are deploying now in '21, not major things. At the moment, these projects come in, I would say, hundreds of thousands of units. So it's still small deployments, but there is many of them with lots of different players. So we believe that this activity will become significant for us in '21 and then will continue in the coming year, becoming then something important in our group revenue stream. Amaury, you want to talk about the audit and the cost?