Solutions 30 SE (S30) Earnings Call Transcript & Summary

Good evening, everybody. Thank you for joining this conference call on the 2024 results of Solutions 30. This conference will be held in French. And as usual, there will be a transcript available later on, on our website. Amaury, who is our General Secretary, is with me this evening to comment upon the 2024 earnings. And as usual, we'll answer your questions via the webcast messaging system following our presentation. To start off with, I'd like to mention a few important milestones that shaped out 2024. In France, we saw an upswing in our activities in Energy that continued. We won the contract with Verso Energy company, so as to take part in the construction of the first large-scale floating solar plant in Bourgogne-Franche-Comté. We're going to take care of the design, supply and installation of the floating structures and the associated electric infrastructures. This is a new large-scale contract that shows the soundness of our positions in the French market in photovoltaic, which is currently, of course, engaged in quite a boom. Now in Spain, we undertook to divest certain activities that will mature in telecoms, and we're repositioning ourselves in parallel on Energy services, which also are availing of good prospects. We won from the Atlante company, a contract to deploy 50 quick charging points for EVs in the south of Spain and in Catalonia. In Belgium, where our activities in rolling out fiber were temporarily put on hold a little bit in 2024, as you know, the market of telecoms is still nonetheless an active one. Our Unit-T subsidiary entered into a strategic partnership with Wyre for the maintenance of the coaxial and fiber hybrid network there. The market potential in Belgium remains intact, and we are well positioned there. In Belgium also, we've diversified successfully our Energy services into services for electric grids, for power grids, which in Belgium as elsewhere are undergoing a lot of capital expenditures, so to revamp and expand so as to make it possible to engage in new usage patterns dictated by the energy transition. Here, we're talking about a contract with Fluvius, already a client of Solutions 30 elsewhere, which we are now accompanying in the modernization of more than 1,000 kilometers of network, which are medium and low voltage network in Flanders. With EUR 110 million of revenues in the Technology activities, we remain an important player in the area of IT services in 2024. We, in particular, were involved in the context of the Paris Olympic Games in several Olympic sites so as to supply technical assistance for the IT systems and the payment systems, given the level of the -- of demand posed by our clients in the context of the games. This was, indeed, for us, quite a good showcase of our know-how. We also were active on the acquisition front, particularly with, in mind, the idea of reinforcing our presence in the photovoltaic market in France with a stake that we took out an equity interest in the So-Tec company and we hope to up that stake later on. And also in the Netherlands and in Germany with the acquisition of the Xperal company. Finally, we acquired the activities of Gaertner, a German company that specialized in connection and maintenance of fiber grids. This acquisition is going to bolster our abilities in the German fiber market, which currently is undergoing a lot of growth. So it's an active year in terms of business development and external growth. We'll now move on to the operational and financial performance levels. For all of 2024, Solutions 30 recorded revenues of EUR 996 million. That is a slight drop of 5.8% compared to 2023, as you know already because we published our revenue figure on the 31st of January last. As we already said, we made a choice in 2024 to grant priority to margins rather than growth of revenues and to reduce or discontinue certain activities that were not profitable enough or making a loss in our more mature markets. This strategy bore fruit because we were in a position this year, once again, to improve substantially our EBITDA -- our adjusted EBITDA margin by 40 basis points after improving it by 190 basis points already in 2023. Therefore, this is now at 7.5% of the revenue figure in 2024. We even recorded a slight growth of 0.7% of our adjusted EBITDA in spite of the drop in the revenue figure, in line with the guidance that we had already given you. 2024 was also the pursuit of a strong dynamic in our 2 main growth drivers. Firstly, Germany, driven by an acceleration of the telecoms market where our revenues increased by almost 34% and where our margins are already greater than the average for the group. And our Energy activities also, which represent 15% of our 2024 revenue figure, up by more than 28%, shored up by the energy transition. Our cash flow generation also improved substantially in 2024 with a net free cash flow figure that became positive in 2024 at EUR 5.9 million, whereas it was negative by EUR 17 million in 2023. The net free cash flow includes the leases for our premises and our vehicles, which normally speaking, are stated under IFRS rules as being financing streams. We've retained a financial structure that is extremely sound, with a net bank debt that is almost 0 at EUR 0.8 million at the end of 2024; and financing requirements that are totally covered by the refinancing of our bank debt, which we conducted successful in November last, EUR 120 million worth. In September 2024, we held a Capital Markets Day on the occasion of which we presented our road map for 2026 and gave a certain number of clearly stated objectives that we can now confirm: the tripling of our revenue figure in Germany and in Energy in France compared to 2023; and the achievement of an adjusted EBITDA margin that will be greater than 10% in our 3 main geographies, that's Benelux, France and Germany. Concerning the 2024 revenue figure that we already presented, I'd like to briefly recall the developments that took place per segment of business, which illustrates the gradual rebalancing we're doing of our mix in favor of energy. Our revenue figure in Connectivity went down by 12.1%. This is largely the result of our strategy aiming at granting special importance to profitability. However, this drop was attenuated by the strong dynamic in our fiber activities in Germany and Poland recording remarkable performance levels. The Technology activities progressed by 5.9%, driven by the sound trends we saw in France and in Benelux. Our activities in Energy posted very strong growth, more than 28%, driven by very favorable market trends, in particular in renewable energy sources that represented 15% of our revenue figure in 2024 and almost 20% in Q4 as compared with 11% in 2023 in the previous year. In the Energy segment, we developed in the last few years, a large portfolio of services, which now enables us to fully grasp the opportunities offered by this market. Firstly, in the segment of smart meters, Solutions 30 is the European leader with more than 11 million meters installed to date. This position is underpinned by the unique experience acquired with the rollout of Linky in France since 2015. The prospects remain sound here with rollouts that are being pursued in certain countries like Belgium as well as also maintenance activities and renewal activities that are taking over and giving us quite a lot of work to do and also a strong amount of potential ultimately in Germany. In photovoltaic, we're a leading player in France, where we installed solar energy production facilities, but also energy storage facilities, and we also propose services to connect people up to the network. We've already pursued more than 500 projects, representing an installed capacity of more than 1,800 megawatts, and we have strong ambitions for development on the European footing. In the area of EV charging stations, we have more than 150 active clients around Europe. We've signed new contracts in the United Kingdom and Spain and in Italy, and we're well positioned for the deployment of these infrastructures that are key for the adoption on the large scale of electric mobility. Finally, in 2024, we continue to widen our service offering for the modernization of the French power grid with Enedis, and we also won a contract with Fluvius, a Flemish utility company for the modernization of more than 1,000 kilometers of medium voltage and low voltage power lines. This segment avails of a lot of capital expenditure dynamics via -- throughout all of Europe connected with the evolution, of course, of the energy mix and the usage patterns. Energy will remain there for a powerful growth driver for the group in the coming years. If we're to project ourselves in the longer term, it's reasonable to think that these activities could represent up to 40% of the group revenue figure. Another growth driver that's key for Solutions 30 is Germany. The deployment of optic fiber in Germany sped up in the last few years. We were ready though. We deployed an appropriate organization. We replicated our operating model, and we entered into privilege relationships with 6 main nationwide operators. This enabled us to capture the growth that was in the market whilst delivering operational margins, which were at a very satisfactory level, greater than the average level of the group. The payment conditions are also very good there, and that is, of course, a positive impact on our cash flow generation. In Energy, our presence in Germany is still very limited, but the market is particularly attractive there. The acquisition of Xperal in photovoltaic opens new prospects for us, and we have a clear plan to address this market by firstly, developing first of all, in the photovoltaic sector. I'd recall that Germany is the largest European market in this area. And every year in Germany, they install the same capacity as the second and third ranking countries in Europe in solar, that's Spain and Italy. We also want to move towards integrated solutions, including energy storage and also infrastructure for electric mobility. And finally, diversify our efforts into the other energy markets, that is services for power grids and smart meters. The broad-ranging capital expenditure plan and infrastructure that's shaping up in Germany constitutes a growth driver in the long term, particularly promising for our markets. It bolsters our conviction that Germany will ultimately become the third pillar of the group, alongside Benelux and France. And it will be, over time, one of the main growth drivers for us. As I already said, the turnaround of our operating margins is indeed our priority. The selectivity strategy that we implemented in 2024 clearly bore fruit because we brought our adjusted EBITDA margin to 7.5%. I'd recall it was 5.2% in 2022, and we, therefore, have won back 230 basis points in 2 years. We won't leave it at that, however. In Benelux, we have managed to maintain a double-digit adjusted EBITDA margin despite a temporary slowdown in activity. We have shown agility by adapting our organization and processes quickly and efficiently. In France, our margins have increased, thanks to the increased selectivity and rigorous management of structural costs. In other countries, we have made significant progress, thanks to a very good performance in Germany and substantial improvements in Italy, Spain and the U.K. That's it for the overview. I'll now hand over to Amaury to comment on our results more in detail.

Thank you, Gianbeppi, and good evening, everyone. Let's start with the main elements of our 2024 income statement. Revenue augmented to EUR 996 million, down 5.8% compared to 2023. Operating costs fell by 7% to EUR 826.1 million or 82.9% of turnover compared with 84% last year, reflecting rigorous management. Central costs remained stable at EUR 94.8 million, representing 9.5% of turnover compared to 9% in 2023. Adjusted EBITDA amounted to EUR 75.1 million, up 0.7%, with a margin that increased from 7.1% to 7.5%. Operating depreciation and amortization decreased by 10.2% to EUR 46.7 million or 4.7% of turnover, which more or less corresponds to the normative level. Finally, our adjusted EBIT reached EUR 28.4 million, sharp increase of 25.6%, representing 2.9% of turnover compared to 2.1% last year. Our operational profitability indicators are, therefore, improving despite a decline in turnover. This is a logical result of the increased priority we gave in 2024 to improving margins over growth. Let's now move on to the analysis by geographical area. And let's start with Benelux, which is our #1 in terms of sales and EBITDA. Over the year 2024, our adjusted EBITDA stood at EUR 37.1 million or 10% of turnover compared to EUR 43.6 million and 11.4% in 2023. As you know, after 2023, a year marked by exceptional growth of 72%, which led us to recruit massively and develop our structure rapidly. The activity slowed down in 2024 with a 2.6% drop in turnover. This is mainly due to delays in the rollout of fiber from the second quarter onwards, in the context, as you know, of negotiations between operators. Despite the sudden drop in activity, we maintained a double-digit adjusted EBITDA margin throughout the year. And this resilience is the result of rapid and efficient adaptation of our operational processes in our organization. The Benelux remains a strategic profitable region with potential for the group, with a well-established model and an agile structure. In France, our adjusted EBITDA amounts to EUR 34.1 million or 9.5% of turnover compared to EUR 35.5 million and 8.8% in 2023. This represents an increase in our margin of 70 basis points despite a 10.5% decline in turnover. This significant improvement in our profitability is the result of the strategy of increased selectivity implemented in the Connectivity business, with a strong priority given to profitability over revenue growth. This strategy has led us, I would remind you, to reduce our exposure or even an exit from certain contracts where the profitability was no longer satisfactory. This increase in margin also reflects the growth of the Energy business, in which we are now firmly established in France with economies of scale beginning to be felt. Finally, efforts to rationalize or streamline our structure in France have continued with tighter control of central costs. France is thus making a significant contribution to improving the group's profitability in 2024. In other countries, we have increased our adjusted EBITDA by almost [ 3 ] compared to 2023. It stands at EUR 16.3 million or 6.2% of turnover compared to EUR 5.5 million and 2% in 2023. Now this improvement is driven mainly by Germany, where business continues to grow rapidly with a margin level already above the group average in 2024. Now in this regard, I would like to take this opportunity to inform you that as of the 1st of January 2025, we will report on Germany separately in our publications, given its strong growth and the fact that it is gradually emerging as the group's third geographic pillar, next to Benelux in France. Poland is also performing well, with a light improvement in its margin. In Italy, the agreement reached with the main telecoms client has resulted in the elimination of the financial risk identified a year ago by a return to normal activity in the third quarter and gradually improving economic conditions. We are thus breaking even for the full year 2024 in Italy after the significant losses logged in 2023. Finally, in the U.K., we have seen the first tangible signs of progress, which will now need to be confirmed and accelerated. Overall, the other countries have thus made a strong contribution to the improvement in the group's profitability in 2024, and are showing encouraging momentum for 2025. Now let us move on to the lower part of the income statement. Our adjusted EBIT for the 2024 financial year amounts to EUR 28.4 million, with an increase of 25.6% compared to 2023. Amortization of intangible assets amounted to EUR 14.5 million, a stable level year-on-year. I would remind you that this is purely accounting charge related to the valuation of customer relationships in the context of acquisitions. This valuation is then amortized on a straight-line basis in the consolidated accounts with no impact on cash flow or linked to any tangible assets. Nonrecurring items amounted to EUR 13.4 million. That's down compared with minus EUR 11 million in 2023. These expenses mainly correspond to restructuring costs, reflecting the measures taken to accompany the selected decline in certain markets and optimize our structures accordingly, particularly in Spain, the U.K. and in France. The financial result stands at minus EUR 14.7 million compared to minus EUR 13.1 million last year. This change is mainly due to the rise in interest rates, which led to an increase in financial expenses and related to bank debt and IFRS 16 leases. Bank interest charges thus reached EUR 7.2 million compared to EUR 5.4 million in 2023. And those related to the IFRS 16 contracts amounted to EUR 3.2 million compared to EUR 1.7 million in 2023. Including corporate tax of EUR 1.4 million and a positive share of the result of the company, So-Tec accounted to using the equity method amounted to EUR 0.4 million. Our consolidated net result stands at minus EUR 15.1 million. The group's share of the net result is minus EUR 15.8 million compared to the previous year. As I indicated, this is heavily impacted by the amortization, rather than a financial reality. And if we talk about group share, net of the tax effect, we obtained a net result adjusted for group of minus EUR 6 million compared to minus EUR 12.9 million 1 year earlier. This adjusted net result is a reflection of group profitability, which is making progress. Let's move on to the performance and cash generation, which is clearly up over 2024. The free cash flow stands at EUR 40.2 million in 2024 compared to EUR 13.4 million in 2023, multiplied by 3. This can be explained by the valuation of a positive flow of EUR 1.6 million compared to a negative flow of minus EUR 26.2 million in 2024 (sic) [ 2023 ]. In addition to the impact of the decrease in sales, the strong improvement in cash flow has to do with the change in the group profile of activity and also the generation of cash with a favorable effect on means of payment. You should note as well that the change includes a significant result and factoring minus EUR 40 million. This has to do with the decrease in France and the growth in Germany where the conditions of payment are revealed to be quite favorable. And CapEx is under control at minus EUR 18 million or 1.8% of sales, in line with our normative figures. After taking into account the payment of IFRS 16, the net free cash flow reflects a -- cash flow operating exhaustive stands at EUR 5.9 million compared to minus EUR 17 million last year. This return in positive territory marks a significant step for the group and reflects both the improvement in our profitability, reinforced financial discipline as well as a positive impact in the change of our profile of activity. On December 31, 2024, our net cash stood at EUR 96.3 million compared to EUR 118.2 million at the end of '23. We should underline that our use of factoring was reduced, standing at EUR 109 million at the end of '23 compared to EUR 68 million at the end of '24 or a decrease of more than EUR 40 million. In addition to free cash -- net cash flow generated by this year of EUR 5.9 million, it can be explained by the following factors: the impact of acquisitions for minus EUR 3.6 million, including EUR 3.5 million under price complements in acquisition of previous years and EUR 0.1 million. In terms of financing flow, we have notably reimbursed EUR 14.4 million of bank net and paid EUR 6.9 million in interest. And the currency effect represents an outlay of EUR 1.1 million. So our position in terms of cash is extremely solid and robust at the end of 2024. Same is true for the financial structure of the group, which has a great amount of liquidity and with almost no financial debt. The difference between treasury and bank debt is balanced, with a net banking debt standing only EUR 0.8 million at the end of '24 against figures of EUR 5.7 million 1 year earlier. This position is even more solid since we have reduced our recourse to factoring, passing from EUR 109 million at the end of '23 to EUR 69 million at the end of '24. Taking into account the EUR 68 million of debt -- of IFRS 16 debt, mainly due to releasing our new fleets of vehicle and EUR 4.1 million linked to comp price additions and sales options, the debt net of IFRS for the group stands at EUR 73.8 million in IFRS, slightly down from last year. Lastly, we have crossed an important step in November of 2024 with a full refinancing of financial debt. This new financial of EUR 120 million was organized with a syndicate of 8 banks, which made it possible to reinforce the robustness of our group and to extend the maturity of our debt to 7 years, which covers all of our debts in similar conditions to our previous debt. I'll finish with our financial results in 2024, and I suggest that we move on to events of note in CSR. Since 2019, Solutions 30 has been bolstering year in, year out, its commitments in terms of societal and social responsibility. In 2024, we made concrete progress in several strands of our CSR strategy. We updated our analysis, our double materiality assessment process that is in line with the requirements of the CSRD. This work enables us to reinforce the impact strength of our whole process and was utilized as a basis so as to revisit our CSR strategy. There's a new online training module also on ESG challenges that was deployed with all of our employees so as to foster an awareness, buy-in and an internal alignment around our sustainability objectives. In terms of the climate, we also improved the quality of our carbon data with the support of a specialized company that helped us out there with a view to formalizing objectives for reduction that will be aligned with the SBTi. We also prepared our annual report on the basis of voluntary compliance with the CSRD, anticipating future reporting obligations and reinforcing the transparency of our whole process. Finally, there's a new risk -- compliance risk assessment tool that will be set up in the first quarter of 2025 so as to reinforce our selection processes for new subcontractors with a particular focus on cybersecurity and regulatory compliance. You can see here on this slide, the concrete results that we achieved in terms of CSR in 2024. Environmentally speaking, we reduced our greenhouse gases with an absolute drop of 8.3% in Scopes 1 and 2 and a corresponding drop in intensity of 2.7%. Our activities that are aligned to the green taxonomy of the European Union also progressed, representing 11.4% of the revenue figures as opposed to 8% in 2023. This growth reflects the growth of our activities in solar power and also the services connected with electric mobility. From the employee perspective, the labor perspective, our accident severity rate went down. It went down to 0.65 in 2024, pursuing a favorable trend that we started to see going down in 2021 already. Also, we have continuing training that's continuing to play a structuring role, with 29.4 hours of training per employee on average in 2024. That's a 6.5% more than 2023. Finally, in terms of governance, 97% of active subcontractors are now recorded on mySupplace. They're logged into that, which is our portal. It's our management tool to manage our partners. Finally, our objectives regarding ESG for 2025, you see them on the screen here. Environmentally speaking, we're aiming at a drop of 8.8% of our carbon intensity, that's Scopes 1 and 2, and we want to bring to at least 13.5% the share of our revenues aligned to the European taxonomy. Socially speaking, our main priorities are to maintain an accident severity rate that will be lower than 0.65, also make available at least 25 hours of training per employee and also aim at 25% of women in managerial posts. Finally, in terms of governance, we're aiming at, at least 95% of subcontractors that will be managed by my mySupplace portal. I'd recall that these ESG indicators are integrated into the assessment and the variable compensation package of the managers of the group. That's the end of my part of the presentation. I'll hand the floor back to Gianbeppi.

Thank you very much, Amaury. As you've understood, our increased selectivity strategy bore fruit in 2024. In the future, we're going to continue granting special importance to margins compared to the volumes on our most mature markets, plus continuing to develop our business activities in the most attractive market segments. In 2024, we also pursued substantial transformation processes in our business portfolio and in our organization. This work must be completed in 2025, but we're going to this year with sound basis, and we have renewed confidence now in the fundamentals of our group. We set ourselves a course for 2026 that was presented at our Capital Markets Day in September last. We want to triple our revenue figure in Germany and in Energy in France compared to 2023 and reach an adjusted EBITDA margin that will be greater than 10% in our 3 main geographical regions. We've already achieved a lot of progress in this direction in 2024 and will continue in 2025, and we now think that we're well on track to achieve these ambitions. And finally, a word about our 2025 calendar, which the Supervisory Board has decided to streamline as follows. From now on, we will publish our half yearly and annual results in one go, without publishing turnover figures for Q2 and Q4. In addition, our Q1 and Q3 turnover figures will now be published in a press release as is always -- already the case, but no longer in a conference call. The idea is to better align with the group's current priorities, namely improving margins and cash generation rather than revenue. And also to be more in line with the market practices for listed companies of our size. This streamlining of the publication schedule will obviously not prevent us from maintaining an open and ongoing dialogue with the financial community since management, the Investor Relations team and the shareholder services department remain at your disposal to exchange with you at any time. This concludes our presentation. Thank you for your attention, and we are ready to respond to any questions you may have at this point.

We have questions. First question, the amortization of the clientele is going to take place over how many years? Amaury, can you respond?

This amortization of customer relations, I should perhaps start with a reminder of what this is about. The group proceeds with acquisitions to perform a purchase price allocation and to define the value of the customer portfolio in the case of these operations. Now these amortizations are customer relations once they are amortized over the life cycle of these contracts. Today, half the value of the customer relations have been amortized, and remainder is roughly EUR 70 million of amortization of this type. So that is going to be continuing in the middle term.

Another question. At what point in time will Solutions 30 be profitable? Will it be in 2025? I'm going to hand over to Amaury to say a bit more. But what I wanted to say here, I think I've already said it in the conference on sales. In 2024, we had a significant reorganization, which cost us a lot of money. Indeed, EUR 15 million -- almost EUR 15 million we spent in extraordinary items. This is not going to be the case in 2025. Now is the reorganization totally finished? Not exactly. We have 2 little bits that are still to be done in the first half year of '25. And then the second half year in 2025 should be once again on a stable basis with the basic cleanup is finished. Amaury, would you like to move on?

I agree with all of that. If you consider the net result group share in 2024, it was minus EUR 6 million, and it's almost balanced now, which was negative the previous year. Now -- and this includes some EUR 15 million of exceptional items linked to restructuring that we've just mentioned. So we are expecting in '25 to have significantly lower costs for 2025. So we should [indiscernible] our progress in the net amount.

Thank you, Amaury. Another question about Germany. The growth of Germany, is it going to accelerate with the investment plan for infrastructures of EUR 500 billion signed in Germany in March? The answer is yes. Indeed, this plan is very important for us, and Germany is really very far behind in terms of infrastructure-based investments. A very strong political position taken and creating a bit of debt was necessary for them. So they are certainly going to be catching up on being late, and that's going to be a huge investment, which is very good for us. Now I have to temper what I'm saying. The Germans don't have a reputation of being excessively fast. So don't expect everything to explode. This is not going to be the case. However, it's going to be significant progress at regular growth in our market. We are fortunate to be well positioned in telecoms because they're already working with all of the operators. So we're well positioned. We're going to be carried forward by these investments. In terms of Energy, with what we're doing currently in solar and the experience that we've acquired in charging stations for vehicles and the improvement in optimization of electrical distribution networks, we believe in these areas, we will have some wonderful opportunities as well. So we're very positive about Germany as you can see, and we are starting to, as Amaury is saying, we see in Germany, things happening very soon. Another question. There are EUR 13 million in nonrecurring items in '24. Will these exceptional items continue in '25? Well, we just spoke about that. Do you want to add anything, Amaury?

One additional word. These expenses were linked to the selectivity -- increased selectivity that we implemented to improve our margins and to stop activities that were less profitable. This is significant in proportion because we operated these changes simultaneously in several countries, and I confirm that we are expecting to have much lower levels for 2025 in terms of those types of expenditures.