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

Welcome to the 2022 annual results presentation for Sopra Steria Group, which will be led by Cyril Malarge, CEO; and Etienne du Vignaux, Group CFO. There'll be a Q&A session after the presentation. [Operator Instructions] This presentation is simultaneously interpreted into English and it is recorded. I will now hand the floor to Cyril Malarge. Over to you the floor is yours.

Thank you. Good morning. Morning, ladies and gentleman. Welcome to this 2022 annual results presentation call. I'll be leading this presentation with Etienne du Vignaux the Group CFO, and I will start by talking about the highlights of 2022. So now, we'll look at the operating position in each of our 5 reporting units. Etienne will present the details of the financial results. And then I will provide a reminder of the main areas of our strategy. Then we'll finish with our financial targets for 2023. Then we'll have a Q&A session. So Sopra Steria generated a good performance in 2022. We comfortably achieved our targets with organic growth in revenue of 7.6%. We exceeded our objective of 7%, which was revised upwards in last October, and this was thanks to quarter 4, which was sustained above 8%, so one of the strongest quarters of the year. Our profitability also improved. We reached the top of the range of our guidance with operating margin on business activity of 8.9%, representing an increase of 0.8 points when compared with 2021. I'd like to highlight that 6 entities representing 74% of the group's turnover hit an operating margin of either 10% or above. So this new factor clearly confirms us and puts us on track to generate operating margin on business activity of about 10% in 2024. Free cash flow was very solid EUR 287.2 million, so 5.6% of revenue. Finally, net profit margin also improved significantly, so 0.9 points and was 4.9%. So if we take a step back, we can see that the group's performance structurally improved over the last couple of years, with nearly 9% operating margin on business activity. So at its highest level since 2012 transformation in -- or into cash improved, and the free cash flow is now well established within our midterm guidance. So between 5% and 7% of revenues. The RoCE also improved over the last 3 years, the return on capital employed, and is now above 14%. And so this represents an increase of nearly 5% since 2020. We saw an improvement in profitability, but also better management of capital. So the year was obviously very busy from a business point of view. We signed some good transformation programs. Out of these wins, I want to focus on 3. First of all, we've got the renewal of the significant contract that we have in the U.K. creating recurring revenue, and I'm referring to the U.K. visa and immigration contract for the visa renewal service, which was extended up until 2024. And then within [ age f ] up until 2031, we'll be providing back office service for a number of hospitals that are expanding. We've also expanded our contract with the Financial Conduct Authority contract. We're also chosen by the Norwegian Public Road Administration to operate a solution which records and certifies vehicles in Norway. So EUR 200 million over 8 years. And these solutions obviously, reinforce our continuum specializing in road safety in Europe. So we've been operating the driver's license system in France for several years now and this has been extended to maintenance and vehicle registration. Sopra Steria Next so our consultancy brand is supporting CMA CGM with a consultancy environment, helping them with their decarbonisation strategy. So steering their energy consumption. For 2022, we saw an acceleration in our strategy in different areas. And I'll go over all of them. First of all development in consulting, reinforcing our market share in Europe, then our position in digital sovereignty and trust, transformation of our offerings, our operational efficiency, and then also our corporate responsibility. So let's start with consultancy. For us this is a strategic, amazing strategic area for the group's positioning as a partner in major transformations for our customers. It represents EUR 435 million. Their business was very buoyant in 2022 and got external recognition from the various rankings that you can see on the screen, 18% growth. We reinforced our teams with approximately 400 additional consultants. So this change also comes with a with a value ramp up with regards to our positioning. So average daily rate was up 5%, approximately. We're starting 2023 with positive trends, we're drawing on a new organization and new leadership. We decided to gather together all of the consultants in France in one separate business unit focusing on consultancy, to be able to drive more momentum and provide more added value to our customers. And I'm delighted to announce that we've got a new executive director for consulting joined us at the end of 2022 to drive the ambitious project that we have for our consulting business. In 2022, we also worked on our market share in European countries that we consider to be strategic for our future development. Last year, we announced the proposed acquisitions of Tobania and CS Group. So Tobania in Belgium, which will enable us to double the group's presence and will be 1 of the top 10 players with over EUR 200 millions in turnover. And we consider this country to be strategic for the group's strategic in Europe, given its size, but also given the presence of the European institutions. The acquisition of CS Group obviously reinforced our presence on the French market with 6% market share. We're clearly the #2 player in digital services. So beyond the size, this change reinforce our positioning in terms of sovereignty digital trust from major European customers, and I'd -- to suggest that we spend just a couple of minutes on the matter. Obviously, would seem, in addition to geopolitical and energy crisis, we've got our strategy, and we've identified sovereignty and digital trust as key challenges in Europe, challenges where we could position the group as a very credible player. So the acquisition of Eva Group, EvaBssi at the end of 2021 and then CS Group, the announcement in July 2022. These 2 announcements are obviously aligned with the strategic vision. In 2023, the group will reinforce its presence in defense, security, space with approximately EUR 700 million turnover, which will make Sopra Steria a major player in this domain. We will also reinforce our business in energy and utilities with approximately EUR 350 million in revenue. And in particular, we've got new skills in the nuclear domain, and this is quite promising. For cybersecurity with over EUR 200 million in revenue, we will be positioned as a leading player. So another area, an important area in our strategy is our value ramp-up. So transforming our offers, and we should highlight this when we talk about 2023. So within the group, we'll be rolling out our new industrial offer, which is called Engine. So this integrates digital transformation services, it natively integrates our methods, assets, industrial methods, extra services and the reference frameworks. So this is a state-of-the-art tool, and it's going to be a source of extra added value for the group. The second point that I'd like to highlight is that we are working on our operational model, which needs to leave more space for horizontal centers of excellence so that we can accelerate development of technological and critical skills for the company. So the digital center of expertise set up 4 years ago is going to benefit, it's going to leverage other centers with cloud, AI, data, et cetera. And for us, it's a question of being attractive and it's a way of retaining our resources. Finally, in the U.K., we've accelerated business platform development. So drawing on traditional skills, combining AI and BPO. So we're building business offerings, business offerings that are enhanced by technology, so AI and cloud. Today, we have 5 platforms that are currently being rolled out. In 2022, they generated total revenues of above EUR 560 million. Now let's come back to our operational efficiency. It's been improved in 2022, thanks to various decisions that we took. So combined with the added volume in our office and then this ramp-up in prices as well for our service activity throughout the year. We've also reinforced our resources in offshore areas. And the number of employees in India went up by over 14% in India, whereas the total headcount increased by 4.7%. Resources in our offshore centers represent 19% of total workforce. We've also launched a program to reduce our real estate footprint. And we're targeting savings of around at 30 basis points with regards to our total revenues. So for SFT, we've also decided to initiate a risk reduction process. So in the midterm, with the Sparda-Banks, we've shared the observation that there's a difficulty aligning all banks onto the same platform. We've also observed a change in strategy for some of these banks. And together, we are considering stopping the transformation program. So we'll carry on with the run up until 2026, and this won't have a significant impact on 2023. And beyond 2023, we consider that it won't hinder the group's capacity to generate above 5%. So in 2022, we also reinforced our Corporate Responsibility Policy, which is obviously at the heart of our strategy. At Sopra Steria, we contribute to society in a sustainable human focused and a purposeful way. We've committed to reducing greenhouse gases, boosting female representation and then we're also committed to digital sovereignty. So at the end of 2022, greenhouse gas emissions was 68% when compared with 2015. So this places us in a good position on track to reduce emissions by 85% from our direct business activities by 2040. So the group is obviously very proud of this. We're proud to see that the work that we've done in this area is being recognized by the Financial Times and [ Le Puan ] magazine. With regards to female representation now, we improved the percentage of women out of total headcount. So this has increased by 0.7%. And women in the Excom was up 20%. So in terms of digital sovereignty and trust, we are a founding member of the new cyber campus, and we've been very active in terms of digital ethics. We had the publication of the first one from [ NIC ]. So this is focusing on digital assets. Finally, a Great Place To Work score improved once again, an overall satisfaction rate, which was up 6% to reach 78% in total. Now let's look at the operating situation in each division. So we'll start with France, a good year for France. Operating profit on business activity went up by 1.4% to hit 10%. Organic growth was 9.7% over the year and the fourth quarter, which was buoyant at over 9.5%. The most dynamic or buoyant verticals were aeronautics, defense and transport and the most buoyant offers were PLM, cybersecurity and consulting. I just want to highlight good growth in consulting in the fourth quarter, so 22% in France. Now let's come to the United Kingdom. Good year for the U.K. The operating profit on business activity was up 1.4% to hit 10.5%. Organic growth was significant at about 7.3% after 2021, where you'll remember, where we had already high growth rate of 13.9%. So growth was driven by all of our business, our joint ventures, defense and security, the public sector. And I also want to highlight return to growth in the private sector. So this was announced and has been confirmed in 2022. Now for Other Europe, operating profit on business activity was 6.2% compared with 7.8% in 2021. A couple of comments. Situation in Germany has returned to normal in the second half. Excluding SFT, operating margin was close to 8%. And in the second half, it was close to 10%. Now beyond the discussions that we've had with regards to SFT, which had a slightly -- it had a more dilutive effect in '22 when compared with 2021. Growth was solid at 8.3%, driven by Scandinavia, but also Spain, Benelux and Italy. Now if we look at Sopra Banking Software, so the operating profit on business activity was up by 200 basis points, so EUR 27.6 million, 6.5% of turnover. This is the result of a transformation plan launched in 2021. We saw a EUR 10 million savings in costs -- the revenue contracted by 2.3%. This was due to a downturn in service revenue, but software was up by 1% and in particular, 6% for subscriptions. Finally, our investments in our digital offers are starting to pay off with growth of 13% in the digital banking suite offering. Finally, Other Solutions also improved last year. Operating profit on business activity was up 2.9% and hit 13%. Growth was also up to standard with organic growth of about 5.6%, 7.2% for Human Resources Solutions and 2.2% for Property Management Solutions. Now I will hand the floor to Etienne who will present the financial results.

Thank you, Cyril. Good morning. To start with, looking to have a look at the consolidated income statement that you can see right now. Cyril's given you the third aggregate. Revenues reached EUR 5.101 billion, therefore, up 7.6% from the organic point of view. And the operating profit on business activity reaching EUR 453 million, therefore, 8.9% margin rate, therefore, up 80 basis points versus 21%. Then between this operating profit on business activity and the profit from recurring operations, there are also amortization [indiscernible] there's the share-based payment expenses, and that's minus EUR 23 million. And this includes the We Share employee plan that was launched again during the first half of 2022 -- second half of 2022, we'll have We Share 2023. These expenses will represent 0.6% of total revenues in financial year '23. Then we have amortization of allocated intangible assets going down slightly. And therefore, profit from recurring operations reached EUR 397.6 million therefore, 7.8% of revenue, up 17.2% from '21. Other operating income and expenses are stable. Therefore, operating profit reached EUR 361 million therefore 7.1% on revenue and therefore, up 19.1%. Between this line and the net profit, we have stable financial expenses and EUR 4 million in the decrease of financial income and expenses and interest expenses on the pension obligations that are down a little. Before we reach net profit, I'd like to talk about the share of net profit from equity-accounted companies, it's negative this year. That is minus EUR 14.7 million. The explanation is Axway that reported yesterday, and it represents 1/3 in the accounts of Sopra Steria. Their net accounting profit is negative after taking into account asset depreciation that were announced in October last year. And then this impact on our books has no impact on our cash. And finally, if we set aside the minority interest, the net profit attributable to group is at EUR 247.8 million, therefore, 4.9% of our revenue. When we look at other operating income and expenses. We have costs related to business combinations as due to the existing M&A operations. And we've seen a decrease in restructuring costs, partly offset by one-off costs. All in all, the expenses are stable at EUR 36 million. Therefore, they're going down in proportion to the revenues. And in 2021, we were at 0.8% and 0.9% 2 years ago in 2020. We will be talking about tax now. As you can see, the effective tax rate is at 24% for the year. In 2021, the tax expense was included in a one-off effect during the first half of 2021 due to the reevaluation of deferred tax in the U.K., given the announcements made by the British government and the rate on companies would go from up to 19% in 2024, up to 24% in 2024. The normative rate will be 26% and it would go up to 24% in 2024. That's the normative rate. That includes the fact that in France, the CVAE net tax would disappear. Now we'll zoom in on our cash position, free cash flow. Cyril's given you the amount. Free cash flow is at EUR 287 million for the financial year. We're very happy about this. It's slightly above the guidance, which was at EUR 250 million. And then we've seen that EBITDA has increased. As announced at the beginning of 2022. CapEx is up as well. Conversely, we can see that we've seen a reduction in cash that's due to nonrecurring costs and reduction of the additional contribution to the pension plans in the U.K. Working capital requirement change is less favorable than in 2021. We've seen that there's more pressure at the end of the year in terms of payments to our clients. And therefore, WCR is less high or less important on the cash flow than in '21. Therefore, net debt is almost halved -- a bit more than halved at EUR 152 million, therefore, down 54% versus 2021 due to the fact that we've generated quite a lot of cash. We can see that the cash adds relative to the changes in scope are quite minimal. The main transactions that we announced in 2022 that's CS Group and Tobania didn't have any impacts on the cash during this financial year. And then the balance sheet of the group is strengthened for yet another year, I would say. As you can see here, we have the usual ratios, the gearing ratio, the net debt to equity, which is at 8% at the end of the year versus 19% at the end of '21 and the net financial debt to EBITDA before IFRS 16, which is used to calculate the covenants, is at 0.3x versus a ratio of 0.73 at the end of 2021. There's a shop drop in the pensions and cost improvement benefits in the U.K., but not just in the U.K., down EUR 140 million, and this is to be compared with the fact that the long-term interest rates are going up, but also there's the active management of our pension funds in the U.K. Now we'll have a look at our financing capacity. As you can see, we have quite a lot of leeway if we look at amounts available, EUR 1.3 billion of available undrawn amounts at the end of December 2022. Cash reached EUR 336 million, more or less at the end of the financial year and no major maturities in terms of our debt. For instance, we've renegotiated at the beginning of 2022, the conditions for our RCF, revolving credit facility, the maturity now is 2028. And finally, before we hand over to Cyril again. A few words about the existing M&As with these 2 operations, the CS Group to start with in France and then Tobania in Belgium, given the administrative authorizations that we've already received for CS Group, what we expect is a closing to buy the company by blocks to have 75% of a controlling interest in the company. And then there's going to be a public offer at the end of March, and therefore, it will be consolidated in the financial statements as of March. So Tobania, the closing will be early March for 100% of the capital equity and consolidation in our books will be starting in March 2023. Thank you very much for your attention. I will hand over to Cyril, who's going to tell you more about our strategy and the objectives of the group.

Thank you, Etienne. So now let's look at our strategy and our targets for 2023. I'd like to start with providing a reminder of the key pillars of our corporate plan and the levers, which we will activate to support our corporate plan. As you know, it's an independent corporate plan, supported by a reference shareholder which draws on employee shareholding to involve all our employees in the company's development. And this means that we strive to constantly improve our performance. It's an expansion project where we see growth, so organic growth and external growth. It's a corporate plan that gives priority to value over volume. So added value, drawing on an end-to-end approach, a powerful consultant and then technological and digital expertise and specialization by vertical. We also draw on our differentiating factors. So the trusting relationship that we have with our customers, we've got a strong software footprint and then a credible and acclaimed position in digital sovereignty and digital trust with regards to our European customers. Our strategy is based on 3 key defined levers. So our focus strategy, focusing on our customers, our offers and then our digital and industrial production model. So firstly, we're obviously focused on our customers. We've got 100 European key accounts, which represent 2/3 of the group's revenue, and they are across 8 strategic verticals where we want to be a go to player for specific business domains. Now for our offering strategy, we aim to accelerate our value ramp-up strategy for our services. This is seen by a reinforcement in our consulting position and capacities. We're also reinforcing our technological skills. So our digital skills with more training, more certification for our employees. And then we've got an operational model, which should enable us to develop the most critical expertise. And our offer strategy also draws on our software with our 3 product lines. Our digital and industrial production model is indeed our model is digital and industrial. So it has an industrial approach, reusing assets, in particular, cloud assets. And it's based on the complementarity of our different centers, so extra centers, which represent 19% of the group's total headcount. So now if we look at our priorities or our targets for 2023 and 2024, the macroeconomic environment is still uncertain, but the market is buoyant at the start of the year, and we've set ourselves the following financial targets: organic revenue growth of between 3% to 5%, operating margin on business activity is slightly above 9% and free cash flow of at least EUR 300 million. For 2024, Sopra Steria is confirming its target of reaching an operating margin on business activity of around 10%. So this presentation of the 2022 results has now come to an end. Thank you for listening. And I'd like to suggest that we move on to the Q&A session.

[Operator Instructions] We have the first question from Nicolas David from ODDO Securities.

Congratulations for the very good results for 2022. I have 3 questions to ask. #1, the growth guidance in 2023. I'd like to understand how it's structured? Is it a normal year that is some backlog and the business according to you would continue and grow on the basis of what's happened in 2022? Or have you included a significant drop in demand during the year given the macro environment? That was my first question. Second question. Your margins in 2023. Why are you not a bit more offensive in your guidance? If you look at what's happening in Germany, the basis effect is better for Sopra Banking Software. So more information about your margin. And what about your margin guidance in 2024? Why do you think your margin could increase in 2024 after a limited increase in 2023? And SFT. Could you tell us more about the discussions you're having in terms of operational extra costs or exceptional expenses? What about your interest in the joint pension the joint venture and the impact on SBS.

Thank you, Nicolas. First question, our growth guidance for 2023. We'll tell you what we did. The lower part of the bracket in our guidance is a dynamic first half and H2 would be really tough. That is with the sharp decrease in our growth. And the upper part of the bracket in our guidance is based on growth that would continue. That wouldn't reaccelerate, but that would be maintained. So that's the "central" scenario, the upper part of the bracket. As we start the year, the year seems to be good. I consider that today, when we look at the first quarter, our growth is above the upper part of the bracket that we have in the annual guidance. Then your second question, the 2023 margin. Why are we not more offensive? Well, we have uncertainties on markets, very little visibility like the other players. So our guidance, we think, is something that we have trusted and we'll see how the markets change. And then your third question, SFT. Well, what we have done with the banks is that we've agreed on the fact that the conditions are not necessarily all met to succeed in the long term. And also, we think that there are some risks. It was not the case so far, but we're having these discussions with the bankers. We'll tell you more when we have more information on that. But I can tell you that we have to continue work together until 2026. Because if we were to stop the digital transformation project, we would still use the run from the banks for something like 3 years. And our relations are really good with them. And then Etienne will tell you more about the impact.

Yes, impact on SFT, this is Etienne. The figures were reported. The impact will be dilutive. That's going to be a dilutive effect as announced. It's going to be the case in 2023 in the same order of things. So no major impact on the profit from business activity. And as you said, Cyril, we remain a shareholder in this JV with the banks that are also our clients for the 3 coming years. Therefore, we'll perhaps have to reshuffle this, eventually, reshuffle the business should the run, which comes from SFT, should it migrate to a third party, but that will be in 2 or 3 years.

Now what about your margin in 2024 to reach 10%? What are the elements that you factored in the main highlights that we wouldn't see in the short term.

Well, first is something I mentioned during my presentation, we have 6 units that cover -- 75% of our revenues that have reached 10% already. And these units that have reached 10% already have not reached the maximum. So there's still room for maneuver. And the ones that have not yet reached 10% can improve their business. That's one answer. And then we have a performance approach -- a performance-based approach in the company based on 2 levers. First, we keep an eye on the production cost. We're going to continue and grow in India. We're going to improve our productivity as well with the deployment of industrial frameworks and also we'll reduce our property footprint and we'll keep an eye on the average wages and the age pyramid. That's to control costs. And there's another lever that we're going to use, which is the ramp-up in the level of services and therefore, we'll have consulting for the top CEOs and we focus on the major transformation programs will also increase our selling prices. I think we can still increase them. And then before 2024, we will deliver synergies with CS and Tobania. So these are the clear levers that we can use.

Next question from Laurent Maltais, Morgan Stanley.

And I have 2 questions to ask. Can you tell us more about the market, how the market is going to evolve? Do you think the demand is going to slow down in some regions, in some segments? Do you have the impression that customers are more sensitive to prices? Question #2, could you tell us more about the market share changes for Sopra Steria in 2022? Where did you win some market share? And which countries do you know who are the players who lost some market share that's Sopra nibbled or took from them?

Yes. Well, the market is still buoyant or dynamic. There's no change between the end of 2022 and beginning of '23. And if we look at the main business sectors, what I see is that the most thriving markets, the markets where we have a good position are the aeronautics market to start with, with clients like Airbus, and they have a lot in the backlog. And then there's defense, there's transport or transportation. These are the most buoyant markets according to me. And then there are some that are faring well, like banks. There's the digital plan that's very important for the banks still. Then there's the public sector. There's energy utilities and the telcos and other sectors that are less dynamic. I'd say there's 2 I'd like to mention there's retail, retail and insurance. The market is driven by 3 engines. That was the case in 2022 it still is going to be the case in '23. The cloud transformation is one of the engines. That's the first engine, a very important engine it is. And then there's digitizing business and processes that IA and data. There's huge potential for us in the future. And these are just the early stages, I'd say. And then there's security, cybersecurity, anything that has something to do with this. These are the 3 offerings that are quite dynamic in point this year. Then if we look at our geographies, I'd say that all geographies are moving in the same direction. I wouldn't say that one is different from the others. Then a few words about the competition. I've not seen anything special, the usual suspects like Accenture and others are still there and they're delivering. And also, we are with them on some markets and positions. I have not seen anything special so far.

Next question from Emmanuel Parot from Gilbert Dupont.

I have 3 questions to ask. #1, about Sopra Banking. Could you tell us more about your pipeline, please? And what would you say about financial year 2023? Will growth be flat or flattish with a slight improvement in your profitability? That's for Sopra Banking. Question #2, perhaps, the price and wage impacts in 2023, what would you say about your pricing policy and wage policy, do you still trust that you can pass on the wage increases into your prices and have a price increase. And then the weight of offshoring, which is growing. Could you tell us more about your midterm objectives such as the percentage of -- target of offshoring of your business? And can you tell us more about the weight of offshore for Continental Europe as a percentage, an overall percentage?

Right. Your first question was about the pipeline for Sopra Banking in 2023. Well, we have quite a lot of things in the pipeline, a good business pipeline. The end of the year was very positive. We started reaping the fruit of our investments in the digital offer. And as we speak, I'd say that Sopra Banking, we consider that today, we could be again looking or expecting growth in 2023. Growth that would be drawn by the digital offer. So far, we've delivered EUR 4 million. Those are the R&D gains in 2021. Now we've reached EUR 10 million, so that's half what we have in the plan. We'll continue to roll out the plan, but probably we'll refocus more on the development of the digital offer. That's where the market is. We've seen that if you look at our pipeline, and we'll accelerate the go-to-market. The second question has to do with price setting and wages. Well, if you look at prices and wages, it's quite positive for us. If we look at 2022 for all of our geographies, our selling prices were above the increase in average salaries. If you look at France, average selling prices were up 4% and salaries were only up 3%. How come? Because, as you know, we're quite proactive in terms of our selling prices because we go up market. And then if you look at our HR policy, it's quite clear. That is our intention is to say we have in between 70% and 80% of the people whom we hire, who are fresh out up to 2 years of experience, we're going to train them. And therefore, we'll have a better control over our age pyramid, the average age, the average wage. And with that, we can have good salary increases as well so that we can keep the teams that have joined us. Then in 2023, I don't think the trend is going to change. We're going to continue on the same lines. And the third question had to do with offshoring. Well, what we're looking for is continued improvement, and our target would be in between 20% and 25%, that would be offshored, total headcount. I can't give you a more specific breakdown country-based breakdown. But for Continental Europe, we're growing fast.

Next question from Aditya Buddhavarapu from Bank of America.

Just a couple from my side. So you've done a couple of acquisitions in 2022, CS Group, Tobania. As we look out to 2023, can you talk about the pipeline for M&A and what your main area of focus is going to be? And then second question, you've talked about the benefits on cost from the real estate property consolidation. So how much of that should we expect to come in, in 2022? What's the benefit of that? If you could just talk about that?

As far as our M&A strategy is concerned, I'll start with that. Well, 2022 is the year that really represents what we intend to do with M&A, that is there are 2 thrusts. First, there's the bolt-on acquisitions. That's what we do so that we can either beef up our offer or be stronger in one vertical or one business line. For instance, consulting, it can be a vertical. For instance, with the acquisition of CS, this is what we've done. That's bolt-on acquisition. And the second dimension is that we want to grow our market shares in the countries that we think are key for the group. For example, in 2022, that was the case for Tobania. So what happened in 2022 really is typical of what we do that's enshrined in our strategy. We don't intend to have M&A acquisitions that will be bigger than that would change Sopra Steria. We want things to be under control, things that we can swallow up easily. Etienne will answer the cost of real estate.

As Cyril said before, well, versus 2022, we think we're going to have 30 basis points gain on operating profit due to the fact that we've reduced our footprint with real estate.

In that context, can I just have one follow-up. I mean, I think, like a similar question. Given you're seeing growth about 3% to 5% benefits from real estate, I mean where you think the 2023 margins can be even a bit better than that just above 9%. Maybe there's some dilution from the acquisitions you're doing, but can you just talk about why the margins wouldn't be higher than that 9% you talked about.

Yes, we -- our reasoning is at constant parameter, of course, if we do acquire, I mean, some companies by 2025, you will have, in absolute terms, an increase in terms of their asset costs. But those companies are presumably also engaged in a reduction plan in terms of real estate cost. So we will see -- we do think at constant parameter, of course.

We have another question from Derric Marcon from Societe Generale.

I have several questions to ask. The first one is the impact of SFT on Sopra Banking Software. Will some products be phased out or some maintenance contracts come to an end or subscription come to an end subscription contracts, are there direct links. I understand what you've said about the run, the fact that you want to keep your position in the JV. But what I was interested in is the link between SBS and SFT. That is given the discussions you have with the banks. The second question about SBS, your European competitor talked about the fact that the Tier 1, Tier 2 customers are increasing their demand. Is that something that you've seen at the end of 2022 that would give you more confidence in 2023? And finally, can you tell us more about subscription adoption of SaaS, then the term licenses in the light of the targets you had at the beginning of 2022 and your actual? And can you tell us more about your outlook for 2023? Will we see the same trends that we've seen in the past 2 years and a shift towards subscription that would continue? And the third question has to do with the U.K. Can you tell us more about outlook for 2023? Some people are concerned, the investors -- the macro investors are concerned after 2 years of growth, as you said, is there still a potential for growth in 2023? Is it something that's secured given what you can see today? And my fourth question has to do with your growth in 2023? Q1 is at more than 5% organic growth in 2023. If you look at the upper part of the bracket for the guidance in 2023, it's more or less the same growth in H1 and H2. So in the worst-case scenario, a 5% organic growth for the year, you expect an acceleration of growth on the basis of what you're going to have in Q1 despite the fact that you're going to have fewer working days in Q3 or Q4, I think versus Q1 and Q2.

Hello Derric, I'll try and answer your questions on the potential impact on SBS SFT. Well, the project that is SFT is based on products that will be delivered by SBS and in the period that starts now, SBS will continue and build for maintenance products. It will still be the case until there's a possible migration in 2 or 3 years, nothing will change, we think, as far as that is concerned. And then as far as projects and services are concerned, the business has gone down a lot this year and will stop. But for SBS maintenance products, there's no change to be expected.

Thank you, Etienne. Then [indiscernible] has seen a sharp improvement on the market. We've seen the same. And that's why I said that there's quite a lot in the pipeline for us. And therefore, as I said, well, we'll probably be back to growth after 2 flattish years back to growth for banking, which will be based on the digital offer and also subscription. Well, to say something about subscription. That was your following question for subscription and SaaS, for Sopra Banking we delivered EUR 64 million. That's for financial year '22, therefore, up 6% versus financial year '21. This growth will accelerate sharply in 2023. Then to answer your question on U.K. and our 2023 outlook? Well, we have a high level of confidence. In the U.K., we have 2/3 of our revenue based on the platform, multi-annual platform embedded platform business. We've just signed off renewals, but also extensions of scope and contract extensions. We have quite a lot in the pipeline as well. And -- we've had quite a lot of savings for the U.K. administration given the challenges that they have. When I listen to the Head of U.K., he says that he has quite a lot of confidence. He's not really worried with Sopra Steria. So we have a good level of confidence in 2023. And then to answer your question on the growth in the U.K. in 2023. Then the group growth in the upper part of the bracket that is 5%. No, this is not growth that would accelerate. We started off a bit better than the peak announced for the annual growth. That is the first percent is the mid-level scenario where growth would not accelerate. If growth is confirmed and is quite solid during H2, then we would probably have to slightly modify our guidance, but we don't have that type of visibility right now.

And I have another question about the EUR 60 million of SaaS subscription. What about your term licenses, please? Are there direct linked with the Plug 6 on SaaS subscription and term license? Or was the trend flat on term licenses?

My answer is that with licenses, we're slightly below the level we had in 2021. That is EUR 46 million we had EUR 50 million in 2021. But that's connected to the number of deals that we've signed off. There's no direct link with the level of subscription. And in 2023, what we anticipate is more or less the same level of licenses. So there's no direct link.

And a question on your digital business. I was thinking that the numbers were really minimal, but maybe that was for the front office business. You're saying that for digital, there is a strong demand. If you look at the customers that could be good for your growth in 2023. What's the percentage in terms of revenue for either software or Sopra Banking Software in general for the digital business of yours?

Well, we look at licenses, maintenance subscription. That's the information we give you. Otherwise, what we can say is that subscription will accelerate during the financial year. The growth was quite modest in 2022 at 6%. Our growth is going to be higher, quite a lot higher in 2023.

We have no more oral questions. So now, we'll move on to the written questions.

So first written question from Gregory Ramirez. Operational margin target of 10% in 2024 and operational margin guidance for 2023, slightly above 9%. Does this take into account CS and Tobania?

The answer is yes.

Second question from Gregory Ramirez. What would be a reasonable operational margin for Sopra Banking Software in 2023 and 2024? What is the impact of the stoppage of the Sparda contract?

So for SBS, I've spoken about this before, we've decided as we've made good progress with the R&D transformation program. Almost 50% of the savings were made in 2 years. So we're slightly ahead. We do have a market. So we're not going to stop, but we'll reduce to be able to free up capacity to develop our digital offers. And so as a result, a return to growth in SBS. So we're not planning an improvement in margin in 2023. We're planning a return to growth, and that is the scenario that we're focusing on today. For Sparda, yes, for Sparda, more broadly speaking, the question behind this is perhaps the development strategy for Germany because discontinuation -- potential discontinuation of the Sparda program could slow things down in Germany, which does have a significant weighting in SBS, so EUR 20 million in Germany for 2022. So this won't impact European development or development in Africa. So single-digit growth in 2023 for SBS.

We have no more written questions. I will hand the floor back to Cyril Malarge to conclude.

Thank you for being present this morning. Thank you for listening, and I wish you an excellent day. Thank you, and goodbye.

Ladies and gentlemen, the conference is now over. You can hang up from the telephone conference. Thank you very much.