Sopra Steria Group SA (SOP) Earnings Call Transcript & Summary

Following the presentation, you can ask your question in writing using the questions tab on the webcast platform. This presentation is translated into English simultaneously and is being recorded. Now, I hand the floor to Vincent Paris.

Good morning, everybody. Welcome to this 2021 annual results presentation. For this presentation, I will be with Cyril Malarge and Étienne du Vignaux. So as you know, we'll have a change in general management. Cyril will be taking over this role as of the 1st of March. So this means with the presentation, we'll be giving the results -- 2021 results presentation together. Obviously, this year, we've managed it together. And then I'll let Cyril talk about the outlook and guidance for the future. So how is this going to work this morning? I will start with the highlights of 2021. Then Cyril will give a detail of the operating position by reporting unit. Then Étienne will give the financial results. And then Cyril will finish with strategy and outlook. And then at the end, we will be answering all of your questions. So if we summarize our highlights of 2021, I think what we can say is that it was a good year. We've exceeded all of our objectives -- all the objectives that we set ourselves a year ago. And this is reflected in a turnover of EUR 4.6828 billion with 9.8% growth and organic growth of 6.4%. Operating profit on business activities EUR 379.2 million, so a growth of 8.1% of our revenue. Net profit attributable to the group is EUR 187.7 million, so 4% of revenue. Free cash flow EUR 264.4 million compared with EUR 203.5 million in 2020. Net financial debt EUR 327.1 million, so reduction of 23.1% when compared with the end of 2020. And the U.K. pension fund deficit of tax is EUR 48.8 million compared with EUR 119.9 million (sic) [ EUR 119.4 million ] as of the 31st of December 2020. Just a couple of words now on other figures that we're actively staring. So this is extra financial criteria. Change in workforce is plus 3.2%. So excluding acquisitions, it was 2.4%. Attrition rate, which we're monitoring very closely is 16%. So it's slightly more than in 2020 we're at 13.6%. But this is quite exceptional, but it's clearly more than -- it's clearly better than 2019 at 17.7%. Feminization of the workforce 17.6% compared with 12% a year ago. The survey which we conduct every year, Great Place to Work, shows satisfaction as we're up 10 points compared with last year, so 72%. And then with regards to the environment we are proud -- for the fifth year in a row, we're proud to be ranked as A list by CDP Climate and then the cumulative reduction in greenhouse gas emissions per employee is 50%. So fully aligned with our targets, so we wanted to make up 85% by 2040. And we're aligned with this objective. So as I was saying, we've generated good performance with regards to all of our key indicators. Growth was 6.4% organic growth, a turnover of EUR 4.6828 billion, so clearly better than 2019. We have -- clearly we're on the road to achieve EUR 5 billion with the growth that we're generating. Operating margin on business activity 1.1% up. So 8.1% compared with 7% last year. And then free cash flow, obviously, we're satisfied with this. Even if we have a favorable contract -- Étienne will come back to that. So we've got about EUR 70 million that was paid upfront. So structurally speaking, we've set the good up -- the group up with a good level of free cash flow exceeding EUR 20 million, structurally. So against this backdrop, we've had a lot of growth, one market share, some nice victories. I won't go over them all, but I'll just give you 3 because they seem quite significant given the context and obviously, good for the future. So Airbus, number one customer. We suffered a great deal due to the COVID crisis. We were selected for our structural deal. So engineering for all Airbus's entities on a global scale. We are referenced as a preferred partner for engineering with Airbus. And it's important to note that Airbus has obviously suffered a lot in 2022. We are planning to achieve the same turnover as what we achieved in 2019. So good work from the team here and a good close working relationship with the customer. A second important victory, very important in the U.K. So in the financial domain, we've got Crown Commercial Service, where we were selected as one of the key operators, one of the key stakeholders in charge of managing government debt recovery. So this obviously required a certification from the FCA. And this is important because this is going to -- we'll see this reflected in our private sector accounts in the quarter 4 of 2022. But it gives us the possibility of pushing the strategy and the vision that we've had in the U.K. So this platform approach in the financial sector. So this first win is important, and it gives us the opportunity to win others. Third contract is iPolice, the police in Benelux or in Belgium, more specifically, with full overhaul of their IT system, a great deal of innovation. It's a state-of-the-art system, and it's reinforcing our sovereignty, which is obviously a key factor in all European countries. And we're very proud of this victory. So 2021 was very promising with a lot of success, as you've seen. Just a couple of words now on the market. No surprises here, very active market, very buoyant in all sectors, in all geographies across all business lines. And this growth is driven by powerful drivers, the same go-to cloud, digitalization & automatization of processes with more and more artificial intelligence and data heart of everything, both to improve our customers' internal process, their resilience. Obviously, we're at the heart of their transformation. And then the third essential driver is cybersecurity increasingly so. Good news is with regards to these 3 drivers, we're very well positioned. We're talking about areas of expertise, which we've been able to accelerate -- which we've been able to reinforce. We're part of the innovation ecosystems. And obviously, we are sovereignty and digital trust stakeholder. Couple of words on HR now. Obviously, this is key. This is an absolute priority. Obviously, the companies that are going to win are the ones who attract and retain the best talent who onboard them onto their projects. So our human resources policy is at the heart of companies like us -- is at the heart of our success. So obviously, we've been rolling out big efforts, and we will continue to do so. We've got structural policies. So obviously, we've got HR policy, and this includes recruitment policies, training policies, which are I would say the heart of company's competitiveness. And we will carry on heading in this direction, but it is obviously at the heart of our priorities. In terms of figures, you can see a change in head count of approximately 1,500 employees. 10,636 people were recruited. So we accelerated recruitment as of Q2. And the figures demonstrate this. Obviously, the second half was a lot more active as planned. So 6,400 employees that group -- joined the group. And then attrition is under control at 16%. So we've also relaunched growth of subcontracting. So with an additional 650 subcontractors when compared with the end of last year. Now our value ramp-up trajectory. We've been focusing on this topic for quite some time. Now obviously, consulting that we suffered due to the COVID crisis. Obviously, we've seen a recovery. So 14% growth in activity, sales price up at 4%. Obviously, we have to carry on reinforcing this accelerating consulting, which is a major part of our strategy. But 2021 was a good year for us. Offer renewal, obviously, this is ongoing. All the drivers that I've mentioned previously impacted. We have to be proactive to guide our customers and to support them through their transformation. And all of this is reflected in something that we're quite proud of. We're increasingly recognized as a leader on this market. You can see on the right of this -- hand side of the slide, you've got all the external recognition. So obviously, this is good, and we have to carry on heading in this direction. In terms of external growth, obviously, it's targeted. 3 acquisitions, very targeted. The first, EvaBssi. So this is a part of cybersecurity in France, where we're increasing our firepower, it was important to do so. And then the 2 others are reinforcing our consultancy activity in Norway. So we've got EGGS and Labs with business design and then user experience. And then just to finish, just another important factor. This is not something that started yesterday. But our policy in terms of corporate social responsibility is one of our priorities. We're working in different areas, so social, societal and environmental. Obviously, social, this includes diversity, quality and then environment. We've got lots of different targets and then societal as well. We've got -- in each of our countries, we've got initiatives that we're rolling out from us, from our employees, which are becoming increasingly important. And this is reflected, we've got an improvement in our ESG scores with the nonfinancial rating agencies, as you can see on the slide. So that's what I can say about the highlights. Now I'd like to suggest we hand the floor to Cyril to talk about the situation in our reporting units.

Thank you, Vincent. Good morning, everybody. So operating performance in 2021 improved with turnover, which was at EUR 4.68 billion with organic growth of 6.4%. Operating profit on business activity at 8.1% with an improvement of 110 basis points. So now let's look at the detail of this -- of each operating unit. We'll start with France. France recorded a key -- a clear recovery when compared with 2020. This is reflected in organic growth of 5.9%. We saw a recovery in turnover in the second quarter, which accelerated in the second half with double-digit organic growth. The most dynamic verticals were defense, aerospace, telecommunications and energy. Against this backdrop, recruitment was kick-started again. And the same applies to subcontracting. We've recruited 2,800 people, and we have increased subcontractors by 300. We're in a situation where we can accelerate recruitment in order to respond -- to address our 2022 targets. In terms -- we've made a progress of 1.8% in terms of operating margin, which leaves us in a good position for 2022. In the U.K., 2021 was a solid year. The turnover was up with organic growth of 13.9%. Our 2 joint ventures, so NHS SBS and SSCL grew by over 24%. Defense & Security and government was up at 9.4%. Despite the Q4, which was less favorable as planned, so less volume here with regards to the visa renewal activity. The private sector generated negative growth of approximately 10%, but the operational situation clearly improved, and we plan to return to growth in the second half of 2022. And this is obviously, thanks to the new platform that Vincent has mentioned, so the service platform. So this is clearly an example of the platform business, which we want to develop. So especially for financial services, we want to develop a sustainable positioning here with added value. In terms of the operating unit, turnover grew and this came with a clear improvement in profitability, which was at 9.1%, so up 110 basis points. For Other Europe, organic growth was 6%. Growth was obviously significant, especially in the Benelux, in Scandinavia and in Germany. In these 3 regions, the growth rate was above 10% with the quarter 4, which was especially buoyant. Operational performance was 6.8%. The countries in this region improved their performance with a margin of 9.1% and SFT is still dilutive, but this was planned. Then there's also reinforcement of our consulting activity in Scandinavia, as Vincent has said. Thanks to acquisition of EGGS and Labs, so for a total of 200 consultants specialized in business demand and user experience. Now for Sopra Banking Software, we are clearly aligned with the objectives that we've established 2 priorities: return to profitability; and at the same time, significant investment in digital offers, which will obviously generate future growth. Progressive recovery of results. So operating profit on the business activity. This was concerned. It's at 17.5% compared with 10.5% in '20 and EUR 5 million in 2019. So the transformation plan is underway for R&D. This is a plan where, in its first year, we saw a reduction in cost of EUR 4 million. And the target of this 5-year plan is to reduce our costs by EUR 30 million in 2025 when compared with 2020. 2021 turnover was down 3.3%, and this is due to a highly unfavorable basis for comparison due to the licenses in the second semester. The growth, just as a reminder, was at 43%. Services revenue was up in the second half of 2021. Now the digital launch of the digital offer and SaaS. So open banking and customer engaging is very promising. This generated EUR 6 million of recurring revenue in 2021, and this should double in 2022. Now Other Solutions saw organic growth of 8.7%. Human resources solutions were up 10%. They saw good momentum in the domain of outsourced payslips. So today, we manage over a million payslips every month. Now property management solutions were up 6.2%. And we've -- over the year, we won 12 new customers. We continue our investments in renovating and digitizing our offers. Operational performance is now above 10%. So this is a first step with regards to the trajectory coming back to traditional margin levels. And now I will hand the floor to Étienne who will talk about the financial results.

Thank you very much, Cyril. Good morning, everybody. And to start with, we will look at the consolidated income statement to the group. First, consolidated revenue reaching EUR 4,682,800,000, therefore up 6.4% organically. Then the operating profit on business activity, the sector reached EUR 379 million. That is a margin rate of 8.1%, and therefore, an improvement versus 2020, but also an improvement versus 2019, more than 10 basis points. 2019 was the benchmark year for us before COVID started. Then between this and profit from recurring operations, we have share-based payment expenses. At the end of H1 2021, we had a new incentive plan. The impact on the P&L is only half a year in 2021. The expenses on this line will increase in 2020 due to the full year effects of this plan, and then the new share ownership plan called We Share 2022 that we'll announce today. I'll come back to this in a minute. Then we have amortization slightly down EUR 33 million. And profit from recurring operations is EUR 339 million, therefore, 7.2% of our total revenues. Other operating income and expenses gained down at EUR 35.9 million for the year. 2020 had important exceptional expenses connected to the COVID crisis. And therefore, operating profit was EUR 303 million, therefore 6.5% of our revenues. That is up 50% versus the previous financial year. Between this operating profit and net profit, there are financial expenses that are under control with a bit more than EUR 1 million, the total drop in the total cost of net debt. I'll come back to the debt structure of the group in a minute and our financing conditions. And then EUR 6 million is the decrease for other income and expenses. These are financial expenses. That include the interest rates at the pensions in the U.K. and also foreign exchange gains, noncash items. In a minute, we'll look at the tax level, which is going upward to EUR 3 million for the year, in line with the profit that is increased. After taking into account the share of net profits from equity accounting to companies, and after deducting minority equities and interest, we have a net profit of which attributable to the group EUR 187 million, that is up 4%. Then other operating income and expenses in 2020, we have EUR 15.6 million of one-off costs coming from the COVID crisis. This is something we can't find in 2021, of course. This being said, restructuring costs reached EUR 35.5 million, therefore, more or less 0.7%, 0.8% of our revenues. Therefore, in absolute values, the figure has been decreasing and as a proportion of our revenues compared to 2020. Then tax. I'd like to say something about the tax level. The effective tax rate is up 32.8% for the year, that is 2021. It includes a one-off effect that we had recorded during H1 2021 due to the fact that we've reassessed a deferred tax asset in the U.K. In spring 2021, the U.K. government said that the tax rate would go from 19% to 25% by 2024. If we set aside these one-off effects, we will have a normative rate in 2022, which will reach more or less 27%. On the following page, you have the details of movement in free cash flow between 2020 and 2021. FCF at EUR 264.4 million. We're very happy about this performance, with EBITDA up almost EUR 65 million. The change in working capital was not as good as in 2020, but that's a variance of a variance or change in a change, but it's favorable. And as Vincent said on that, we saw at the end of 2020, the group benefited from very good conditions at the end of the year. The number of net expected payments is estimated EUR 70 million. We have EUR 50 million at the end of 2020. And therefore, a slight improvement as far as that is concerned. I know it's always difficult to anticipate in this case, but it shows that there's enough liquidity on the market and the cash situation is comfortable for the main clients of ours. Now this good cash generation is such that we can end the fiscal year with a debt that's going to be a lot smaller by EUR 100 million at EUR 327 million at the end of the financial year, with as you can see a bit more than EUR 100 million invested in M&A, and of course, the recovery of the ordinary dividend after being suspended in 2020. The balance sheet is also very solid, and it's even more solid than before with 2 ratios. The net debt -- net financial debt to equity at 19% at the end of the year and the net financial debt to EBITDA, which is the main ratio that we use it if we look at the banking and bond covenants, which is at 0.7x at the end of 2021. Now the financing structure of the group is as follows. I'm not going to go through all the lines. But it's quite diversified with no major maturities in the short run with a lot of undrawn amounts more than EUR 1 billion and cash available more than EUR 200 million at the end of the financial year. That's for the snapshot for 2021. Now I'd like to say something about 3 topics in 2022, and I will start with the financing of the group. The group signed 2 days ago with its banking partners, and we'd like to thank them, by the way, a new midterm financing contracts, which is a revolving credit facility at EUR 1.1 billion with an initial maturity of 5 years that we can extend twice 1 year. That is a maximum of 7 years. Just one covenant, which is the leverage covenant. And there's a novelty to Sopra Steria, which is this credit facility has also a system tax which we can either increase or decrease the price of credit on the basis of the GHD reduction objectives. This, of course, will be geared to projects that have impacts on the environment. It will not go to the bank nor to the group. The second item is that the group is launching a new We Share 2022 employee share ownership program, which is based on a simple principle, which is that is 1 free share for each share that's purchased by the employees for a maximum volume of shares with company contribution, which is 100,000 shares. Therefore, a total of 200,000 shares for this plan, which will be visible on the financial statements in the first half. And then finally, capitalization of some development costs for limited amount. The group is very conservative as far as this is concerned on very well-identified product lines through which we expect strong growth. Cyril mentioned the digital offering for Sopra Banking Software. The group intends to capitalize this for a modest amount in the light of R&D expenditure, that is, we'll have short investment cycles, very strong commercial dynamic. We've identified our ROI and begin to accelerate our investments in 2022. Thank you very much for your attention. Now I'll hand over to Cyril again, who is going to be talking about our strategy and our outlook.

Thank you, Étienne. So before we come back to our outlook and the targets that we're setting ourselves, I'd like to reaffirm our business strategy and just informing what we're implementing to make this project happen. So it's an independent project supported by a reference shareholder and via employee shareholding. As Étienne reminded, it's a project that onboards all of our employees in the company's performance. So this sets out various requirements, one of which is ongoing improvement in our performance. Our strategy is very simple. It means drawing on our differentiation levers, our culture, our digital sovereignty, our close relationship with our customers. And it means producing high-performance offers with high added value, so end-to-end consulting, software, technological expertise and then obviously, our vertical approach as well. We are driving an ambitious project, seeking sustained growth with the targeted acquisition strategy. So it's an ambitious project, which is a European and global for software. So obviously, we're staying in the course, and we're activating the different levers that we've established. So we are concentrated on our positioning with our 100 key European accounts. We have a willingness to have an end-to-end approach with our customers accelerating on technologies. So I'm talking about cloud, artificial intelligence, cybersecurity. And we are also reinforcing our consulting activities. So we've added value here, consultancy to support our major customers' transformation project also draws on production, an extra production model, which is highly robust. And then as for software, this is a key lever, obviously, to assume this high added value, sustainable positioning with our major customers. Our midterm ambitions haven't changed. With regards to the group's performance, we're targeting organic growth in turnover between 4% and 6% annually, free cash flow between 5% and 7% of revenue every year. With regard to profitability, we're targeting operating margin on business activity of approximately 10% in 2024. Finally, we want to play an active and sustained role in sector consolidation, so as to reinforce our skills and grow our market share. So we want to be ambitious with regards to corporate responsibility. This is at the heart of our business strategy. And we've got 3 priorities: the environment; boosting female representation with regards to our management and management bodies; and then digital sustainability with regards to our value proposition. With regards to the environment, we've set ourselves a target of net 0 emissions in 2028. At the end of 2021 with a cumulative reduction of minus 50%, excluding COVID impacts, we're aligned with this objective. Now with regards to female representation, we want to hit 30% of the Excom in 2025. But in addition to this target, we've launched a program to identify and promote high-potential women at all levels of management so that we can actually kick start this approach in the long term. We're also looking at offer sustainability and especially with our consulting offers as well so that we can support our customers with ethical trust challenges and then also responsibility with regard to how we use digital. In 2022, we are fully committed to our transformation and to increasing our performance. We have set ourselves 3 priorities for the year. So firstly, human resources. Big challenge here is attractiveness and so attracting and retaining talent. In 2022, we want to accelerate recruitment and we are targeting over 11,000 new hires. We are also working on retaining our employees. So using the tool Great Place to Work. And obviously, all the initiatives that result from this. All of management at all levels of the company are clearly committed to this absolute priority, which is human resources. Furthermore, Étienne has mentioned it. But this year, we are launching the employee shareholding program, obviously, to closely involve our employees in the company's growth and performance. Second priority is development of business synergies. So developing differentiating offers with a special focus this year on the financial services and defense verticals. And then the last priority for this year is developing, strengthening consulting and software. Obviously, these are 2 key pillars for the group's strategy. Finally, our financial targets for 2022. We are aiming for organic growth in revenue between 5% and 6%. Operating margin on business activity between 8.5% and 9%, and then free cash flow of approximately EUR 250 million. So that is all for the 2021 presentation. I'd like to thank you for listening. And now we can move on to any questions.

[Operator Instructions] We have received first question, an oral question from Mr. Nicolas David, ODDO Securities.

Congratulations, Cyril, for this appointment. I'd like to congratulate Vincent as well for what you've done since 2015. Now 3 questions to ask you. First of all, can you tell us more about the margin improvement drivers in 2022? You would expect a good margin improvement in the context when we have wage increases. So can we expect a sharp increase in the banking software performance as early as 2022? Or perhaps in services, you're not yet back to the levels you had before the crisis or both. If you have any detail, please. And then what are the moving parts between the upper part and the lower part of the guidance bracket. Now second question. I think it's the first time that you're giving us a specific date for the midterm margin, that is 2024. So my question is what is changed then? Do you think you have better visibility? Do you have more comfort to mention the date now? And my third question is staff or head count. Can you tell a little more about Q4 organic net recruitments and your objectives in 2022 as far as hiring policy is concerned? And I have another question as well about subcontracting. 150, as what -- you had plus 800 in 9 months. So was there a decrease in Q4? If yes, why, please?

Well, we'll answer these 3 questions in the right order. First is the drivers to improve our margin. Well, the good news is that all of our entities can improve for different reasons, but we can improve everywhere. It's not just one single unit that's going to be really doing something good and the other ones would be stable. But for different reasons, we consider that in the 2 or 3 years to come and more particularly in 2022, we think we can really improve our performance. That's my first answer. And then I think you asked another question as well about wage increases and the possibility of sticking to our margins. Well, by the way, I'd like to recall that, of course, there are wage increases. And as we speak, we have bigger wage increases than 2 years ago, yet we are careful. And what we look at is the average salary. So we increase the wages of people who have a strong potential or those with potential. And we hire many fresh outs so that we have a pyramid, which will remain more or less the same. We want to have an average wage or salary that's going to be stable over time. Now what's going to happen in 2022 then? We'll give them the context, maybe the average wage is going to be increased a little. But our objective, and that's very credible is that the selling prices will increase more than the average wage increases. And therefore, we think there's no particular risk on that. On the contrary, we'd say that this is an opportunity, given a market that's driving. We think we can improve our margins. And therefore, that's something we can do. I think it was the case in 2021. I think we can improve in all of the units of the group. Second question, why the 2024 date? Well, that's more or less connected to what I've just said. That is we have a better visibility on the different units. Well, of course, the backdrop, the context is different in each case. But for a couple of years, we've decided to stick to the target. It's still the target that we have. But we want to have more ambitious objectives, yet they're realistic given the context in which we operate today. Then the third question, the hiring policy. Cyril will give you all particulars.

Thank you very much, Vincent. Well, as far as the hiring policy is concerned, throughout the year, we started recruiting again. And we've recruited throughout the year. We accelerated during the second half. If you look at the number of people recruited, the number increased 50% compared to H1. And therefore, that means that the beginning of 2022 is going to be quite positive in terms of the recruitment dynamics.

Okay. And what about subcontracting? Is there a number you can give us? The trends, the dynamics and what you're going to do in 2022, will you work more with subcontractors? Or will you hire more people and therefore, work less with subcontractors?

Well, my answer is that if you look at the market, well, we use both levers, that is internal recruitment, but also subcontractors. These are the 2 levers. And we can -- have to increase the number of subcontractors we work with in 2022, but we have a third lever offshoring. This is accelerating so we're recruiting more. So we adapt to meet the market needs.

Okay. So there's been no decrease in subcontractor during Q4. Am I correct? How should we interpret the number?

Well, I didn't even notice this. I think we are going to have more subcontractors. What we can say as well is that in 2022, we are increasing, as Cyril said. We have more subcontractors. We hire more people. Headcount is going up. We're very careful though. We are very conservative, but we want to grow as well. And therefore, we're going to grow in these 3 areas.

So you think that 2022 is going to be more like H2 2021 in terms of total number of recruitments?

Yes, you can say that. Well, all things being equal, of course, and I was thinking about what we heard on the news this morning.

[Operator Instructions] We have a second question from Mr. Emmanuel Parot, Gilbert Dupont.

To start with, you mentioned that there's an improvement in your operating -- your gross margin in 2021. That is selling prices increased more than the average wage and you expect the same in 2022. Is that correct? Second question. Well, first, a question about Sopra Banking. Can you tell us more about revenues in 2021 between SaaS licenses, maintenance, et cetera? And what do you expect in 2022? What's the market going to be like? What about the licenses? And what about your operational drivers? And I have another question yet about capitalization of development costs. What is the amount that you anticipate? And usually, for us, these are all considered as expenses. So why have you capitalized some of these development costs?

Well, question number one then, yes, the margins. Well, yes, absolutely. I can confirm what you have said. This is our rationale. Of course, the situation will vary depending on the country. The increases will be different in India, in Germany and in France. And the price increase is very much based on the business mix. But we've seen this trend at the end of 2021, at the beginning of 2022 as well. We'll continue. And as far as the banking software is concerned, for licenses, well, the breakdown is more or less the same compared to what we said before. It's 12%. Subscriptions, 14%; maintenance, 31%; and services, 42%. That's the breakdown for our revenues. So there's no major, major mismatch compared to what we said at the end of last year or during H1. Now what's going to happen this year? Well, we think we're going to have the same breakdown for licenses, more or less the percentage will be the same as the one we had last year. This is EUR 50 million. And then of course, we will do our best so that we have more subscriptions that we have an increased number in subscriptions. And as Cyril said as well, we will continue and develop our products, and we'll be investing in the most fruitful products tomorrow, and we'll optimize R&D. This is still our rationale. We're not going to change it. And by the way, in 2022 and '23, we'd be consolidating these action plans rather than looking just for growth. It's a good thing, of course, if there's some type of growth. We'll do our best so that we have more licenses, more subscriptions. But the #1 priority for us is to focus on the 2 topics I have mentioned before. This will guarantee tomorrow's success. And then as far as capitalization of development cost is concerned, Étienne will tell you more about this.

Yes, if we look at the amount, I'm not going to give you the exact numbers, but in any case, it's going to be less than 10% of group's R&D investments. So a very small amount. We're looking at products that we've clearly identified and then we want to have more investments to these products, for instance, the digital offering for Sopra Banking Software and with immediate investments that will be accelerating. And generally speaking, these products are based on the subscription mode. And therefore, we have revenues over time, spreading over time compared to the license and maintenance traditional business model that we had until now.

And I have another question about the operational leverage for Sopra Banking in 2022. I think you've worked on rationalization of R&D. Can you tell us more about this, please?

Certainly, our objective is to progressively improve our profitability. We don't want to put too much pressure on the short term though. So it's a tricky exercise. So that's what we've been doing in the past 3 years. We want to optimize our modus operandi. We want to decrease costs if we think we can decrease cost, but we want to keep our levels of investments if it's a guarantee of our success for tomorrow. So that's true. We are progressively improving. We don't want a sudden change in our profit profile for the reasons I've just explained.

Next question Mr. Laurent Daure from Kepler Cheuvreux.

I have several questions to ask you as well. Question number one. On the margins in France. They are not yet back to the normative level. Today, there's a difference between 2021 and 2022. And this change is that at the beginning of 2021, you didn't have an optimum use level? Or are there other reasons that explain why you're not back to the previous level? Question number 2, about headcount again. I know that you have plus 500 people for offshore and yet the percentage is still at more or less 18%. So what you're going to do in India for Q4? They were quite stable. Do you have an objective in terms of offshoring? And the third question about Other Solutions. Now we are back to 10%, that's operating margin. We had the peak of 15 or 16. How can we have this change? Because now revenues are up again, so does that mean that you have a good margin on this service business? Well, you -- that is you usually have 6 points in the margin. Where can you find these 6 points -- these margin 6 points?

Well, the first question is about the margins in France. Yes, you're correct. As we said a year ago, that's the fact that progressively we hired during the first half, and then we accelerated. We've kept the same structure, even though revenues are going down because we wanted to be ready should there be a strong growth. So we said that before. We said that in 2021, we would never find the margins we had in 2019, yet it's still our objective, as Cyril said. So what we're doing is very much in line with what we'd said in 2021. And that's true for 2022. Then the headcount. Headcount in India. We have no problems with our growth in India. It's not because we're not visible enough or it has nothing to do with the local head count or the local teams that would slow down our growth in India, not at all. It's the business we can't send there that is in terms of offshoring. This is how we are positioned. That is, as I said before, it's based on sovereignty. Then we want to be strong in some verticals. I was thinking about the public sector, defense and security and in other sectors, we're a bit careful to offshore things to India. We're not saying we're not doing anything. But we have technological developments there. And we consider that we can still grow in India, given the customer portfolio that we have. But this cannot be compared with the global players, on the industry market, for instance, where their offshoring percentage is different compared to ours. So we have a clear focus. We want to have a center of expertise, a benchmark for the group, which is what we are promoting, what we are doing, but this will be done progressively because we need to convince many clients. But as we go, little by little, we think we can do more in India compared to what we could have done 3 or 5 years ago. And in some cases, we need to do more offshoring in some sectors. So we intend to grow and yet we know that there are some constraints, the concerns I've just mentioned. As far as Other Solutions are concerned, I've been saying this for several half years. We invest more in the modernization of our offerings in digital. It would be a major era if we didn't invest, and we've been investing 2 or 3 years. Otherwise, we wouldn't be in a position to grow enough. So we're revamping our offering. We're investing more than ever in digital solutions or digital technologies. We're on the right tracks back to the 15% or 16% you mentioned before, that's true. But we need to invest for the time being, which is what we did in the past 2 years. Part of what happened is due to COVID in 2021 -- 2020, sorry. But in 2021, we had extra investments that we wanted to do so that we have solid positions over the longer run. And yet, there's nothing that says that in the midterm, we wouldn't be back to our margin levels. If you look at the trends, there's a progressive improvement.

Could you just give us some details in terms of products? So I understand with regards to, obviously, the various development as possible. But with regards to HR products, what investment is there because this is an industry that's changing hugely?

No. But yes, all of our products need to open up to digital in more and more countries, so more and more openness. Customers want a modern HR IT system. And so our products need to be aligned with this. We need to have partnerships. We need to have the possibility to open them up, and we're investing on this. But obviously, it's a relevant comment. We're going to come back to the target with regards to HR quicker than with regards to real estate where the investment is heavier. So with regards to HR, we should get to the target quicker than what we will do with real estate.

We have another question from [ Laura Metayer ] from…

Yes. So I have a question. Organic growth for 2022 is slightly less than 2021. Can you explain some of the drivers for this level of growth? And what do you expect for growth in the U.K. in 2022?

Okay. Well, you've got the answer here, basically. Cyril has already presented growth in the U.K. was very conjunctural. It was boosted 2021. So we're expecting it to be flat in 2022. So that's the first explanation. And then obviously, we've got the comparison, the impact of the comparison basis. 2021, we obviously were comparing with everything that happened the previous year. So it's very difficult to isolate figures. I would say that structurally, we've got a growth trend with an active market recruitment and then obviously, the priorities that we've set ourselves. So I think it's the whole context, but we should hit the growth rates announced for this region.

Next question, Derric Marcon from SocGen.

So I had 3 questions. The first is on the U.K. You said that there was an improvement -- a structural improvement in profitability for the U.K. If -- should we understand with this message that, one, margin can improve in 2022? And basically, with the U.K., if we look to 2024 with regards to 10% group margin, will the U.K. be above that despite the investments that you'll be making in the private sector? So that's my first question. My second question is could we have some -- the ARR for Sopra Banking Software, obviously, for the digital side of the business? And then the third question is with SFS in Germany. Do you expect 2022 -- do you expect the dilutive effect to be comparative with what you've experienced in previous years, especially 2021? And then I've got some other questions, which I've sent in writing, obviously. I know you'd like to read my questions.

So with regards to the U.K., the volume -- the exceptional volume that we had, say mainly for SSCL, where we had a lot more recruitment than usual and the volume in visa, which obviously made up for delays given the COVID crisis. All of this boosted performance but also margins because, obviously, with this type of operations, we've got exceptional volumes. This pulls up the margin. So this is the basis for comparison. So a drop that we're expecting in terms of these operations, in terms of turnover and then profitability compared with the structural improvement that we're working on for the rest of the business. So as said, for U.K., we've got investments to be made in platforms, especially in the financial sector, but we're not going to give up on this. So this being said, we expect to be at roughly the same rate or slightly improved. It's too soon to say in terms of profitability. We're not expecting a huge jump up for 2022. But for 2024, there's no reason not to see this. If we're successful in the private sector, so especially with our platforms in the financial sector. So with the synergies from Sopra Banking Software. Obviously, we think this is accessible for the U.K., broadly speaking, should achieve its 10% in the future. But obviously, it's very too soon to give any more detailed information. With regards to Sopra Banking software, I said about 60 million of subscription, so 14% of turnover. And we're expecting an increase in 2022. And then the last question was on the dilutive effect of SFT in Germany. So in 2022, we'll still have this dilutive effect comparative with -- comparable with 2021.

So will you give us regularly the ARR for digital or Sopra Banking Software? Can we expect to have an announcement on this regularly or because, obviously, with this transition towards subscription or to SaaS, this metric is obviously more important than what it was in the past.

Yes, this is something that we've got in mind, but we won't be giving them in the short term. This will come later.

[Operator Instructions] The next question is from Gregory Ramirez, Bryan Garnier.

I just wanted to come back to headcount for Q4. Just a clarification because when I calculate the attrition, which is integrated into Q4, so net increase was 511 for Q4. So obviously, that's -- we've got the acquisitions as well, so Eva and EGGS. This brings me to 150 recruitments -- net recruitments in Q4, whereas in Q3, I had calculated 620 if we take the Labs acquisition on the 30th of September. Is this -- has I made the right calculation? Or how can we explain the fact that we've only got an increase -- quite a low increase in headcount? And obviously, taken into account the attrition in Q4. I also have a question with regards to the attrition trends that we're seeing in IT services. And obviously, we're seeing that this is increasing across the board elsewhere. But with Sopra Steria, we haven't yet hit the level -- the highest levels of the market in 2018, 2019. Some stakeholders obviously exceeded these attrition rates. So how can you explain the fact that the attrition rate is held at rates that are lower than what we saw before the crisis? Is that Sopra Steria is more exposed in France or in the [ Bergen ] region or we've got less exposition more generally speaking with regards to our customers? So how do you explain this?

So with regards to growth in head count, I don't have the same figures as you. Perhaps we need to look at that in more detail. I've got 670 employees and then 638 in Q4. So there's no breakaway here. Obviously, you have to look at the detail month-on-month. We've got more recruitment in various parts of the year, various moments of the year. When you look at the start of the year, obviously, this is the big question. We've got an active cycle here with the pace, but there's -- everything seem in the continuity, and it's not slowing down. Obviously, this remains a challenge. We're not the only people who are trying to recruit at this time. With regards to your attrition now, obviously, it's very difficult to speak for others, but there is one essential factor. Obviously, we're less present in India, and India has a higher attrition rate. And then elsewhere, this is obviously an essential factor. We talk about recruitment, but it's even more effective to keep employees, to retain them in the long term. We know them. They know our culture. So this is obviously a key priority where we're going to try and differentiate ourselves. But obviously, we'll remain humble. 2022 is probably going to be a little bit more tense than 2021. Yes, just to add to what you're saying, obviously, the best recruitment we can make is actually retaining existing employees. So all of our management is committed to this approach. We've positioned a great place to work with everything that -- this means in terms of action plans resulting from this. We want to create close working relationships between managers and employees. But obviously, we're very humble. The market is what it is. We are all on the same market. So this is going to be an area that we're going to pay attention to in 2022. But our basic principle is that the best recruitment you can make is retaining your existing employees.

So we don't have any more questions on the phone, but I will hand over the floor for the written questions.

So we've had a few questions over the internet. The first is Dominique Raviart from NelsonHall. Who is just coming back to offshore? We've already answered this in part. What are your offshore ambitions in India when Capgemini is recruiting 45,000 people per year? Do you think it will be relevant to have an acceleration in India for Sopra Steria? Yes, I've already answered this question. We haven't got the same volume. We haven't got the same market cap. Obviously, one of their strong sectors is industry, and that's not where we are. So we're less focused on this market. So yes, obviously, we want to push. But obviously, we've got a different project, service center excellence, obviously, more targeted. But yes, we need to grow in India, and there's no reason why we won't be successful in doing so. Next question, Derric Marcon from SocGen. So the 3 recent acquisitions, Labs, EGGS and Eva, has they got growth outlook in 2022 that is above that of the group? Could you give us a few details on turnover volume, margin profile and positioning? So I'll let Étienne answer this. But obviously, these 3 entities are not going to be pulling the group down. So yes, the answer is yes. We're seeing good momentum for these 3 entities. Now for the detail of the figures, I'll hand over to Étienne.

Yes, you've got a few details in the presentation. Eva, EUR 33 million in 2021. EGGS and Lab EUR 15 million and then EUR 6 million, respectively. So in Scandinavia. So EvaSss -- Bssi is cyber. So obviously, significant growth expected here. And then the 2 EGGS and Labs in Norway, we're expecting significant growth in 2022.

We have a new question from Derric Marcon from SocGen.

Sorry to come back to the floor, but I just have another question. It's with regards to the U.K. So for several semesters now, we've seen signs of improvement in the private sectors, but we're not necessarily seeing this reflected in the figures. So what are the items or what are the factors that could lead us to think that we could be -- we'll have a return to growth in the second half of 2022, which is more secured than in the past? And then when we look at the major areas, we're seeing big success in the U.K. in the private sector. But obviously, given the limited weighting of this activity when compared with the rest of the activity in the U.K., it's not going to have a big difference. But could we just focus on growth outlook in the public sector for joint ventures and then outside of joint ventures in the U.K.?

So a lot of questions here. With regard to the private sector, obviously, we've never hidden this. We're a small stakeholder. We haven't had solid position. So each time there was renewal, it was difficult. Either we lost margins or we lost our footing. So for several years now, we've been trying to focus on our strengths. So I said this earlier platform in part in the financial sector. This is a priority. And then for the rest, obviously, we're trying to resist. We're not going to be a strong stakeholder. We need time. So this is already a first victory having this certification. So the possibility to manage the government debt refund platform. And we hope that in the 2, 3 coming years, we're going to have other positions like this. Obviously, given our size, given the size of operations, we're quite confident we'll have growth starting from Q4 of this year. So that will be quite important. Just to give you some figures, about EUR 10 million this year, EUR 30 million in 2023. And given the context, what's important is that we have a loss side of our focus. Sometimes we might leave positionings. We've had negative growth. But margins, even if they're not at the level that they should be, they are nonetheless better than where we were 2, 3 years ago we were losing money. So we're investing, and we're trying to improve our profitability with a more targeted approach. So that's the U.K. project in the private sector. Obviously, with 2, 3 platform positionings, it could completely change things. Obviously, we're never going to be bigger than what we are in public, but we need to have another strong sector. We can't just be dependent on the government, on government changes. We knew this with the public sector approach. This is something we would have to work on. It's a long-term approach. But I think we're attacking it from the right angle so using our strengths. Now for the rest of the U.K., we've got momentum. We've got the vision we have. Public sector is transforming. We've got quite an interesting positioning, and we are expecting growth. I said, obviously, structurally, last year was really exceptional with regards to volume. So we've seen a little slowdown, but there's no reason why we shouldn't be supporting the digital transformation of the public sector. So that's what I can say with regards to the targets of the U.K.

We don't have any more questions over the phone. One last question from Nicolas David from ODDO.

Could you give us an estimation of the P&L cost for the incentive line or the employee shareholding plan for the coming years?

So obviously, this depends on a decision made from the Board of Directors. I can't give you details on that. But we share in 2022, which is implemented this year. Obviously, this depends on the share price, so about EUR 20 million. And then the incentive, obviously, it depends on the share price, about EUR 10 million.

Well, we have no more questions either in writing or on the phone. So please, gentlemen, you have the floor.

Well, if we've gone through all the questions, we'd like to thank you. Thank you for joining us, and we will meet again soon and that is Q1 results. Thank you very much. Have a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]