SPIE SA (SPIE) Earnings Call Transcript & Summary

Hello, and welcome to the SPIE 2019 full year results call. My name is Mahan, and I'll be your coordinator for today's event. [Operator Instructions]. I'll now hand over to your host, Gauthier Louette, CEO, to begin today's conference. Thank you.

Good morning, ladies and gentlemen, and thank you for attending SPIE's 2019 Full Year Results Conference Call. As you know, this year, SPIE is celebrating its 120th anniversary. So from the early stage of electricity to today's Internet of Things, we have supported our customers, innovated, adapted, we created value. The driving force has been the competence and commitment of our employees. I would like this opportunity to thank them all. So after 120 years, we're still around and in a good shape. Despite the present tough market, this is a particular context, obviously, but let us keep our heads cool and take a factual look at our 2019 results. 2019 saw strong delivery from SPIE and a good illustration of the strength of our model. The strong operational performance reflected in a solid set of results, primarily driven by our leading positions in France and in Germany. Continued outstanding cash generation. And once again, this is really the strength of SPIE, which led to a further decrease in our leverage. Our services have always been at the heart of climate change mitigation, and we are one of the very first listed companies to apply the recent European Union taxonomy to quantify it with the green share of our 2019 revenue of circa 35%. I will come to this point in more details in the presentation. We delivered again on bolt-on M&A with a particular focus on Germany & Central Europe, in line with our strategy. And lastly, the strong commitment of SPIE's employees has been once again demonstrated by the success of our 2019 employee shareholding plan. So it's been a busy year. Let's start now with our 2019 highlights on Slide 5. We delivered a solid financial performance, and we're on track with our targets. We posted a 3.6% total revenue growth, excluding ForEx. We kept our EBITA margin at industry-leading level of 6%. And our net income rebounded sharply by 65%. Our free cash flow reached EUR 285 million with 101% cash conversion. And we ended 2019 at a leverage of 2.7, very much on track with our stated objectives. Bolt-on M&A was dynamic with 4 acquisitions totaling EUR 210 million of full year revenue. We see this good performance is shared with our shareholders, and we propose a EUR 0.61 dividend per share, up 5.2%. Our solid revenue growth in 2019 combined both organic and external growth. An outstanding organic growth in France at 4.6%, complemented by a 1.4% growth from acquisition. This is really illustrating the fact that our new French organization is able to capture market opportunities, and we are very pleased with this outcome. Germany & Central Europe at 5.5% growth with a very active German market and a strong impact from bolt-on acquisition at 4.5%. North-Western Europe, on the other hand, was down 3.6%, primarily due to a significant organic decline in the U.K. And we saw good momentum in Oil & Gas and Nuclear, which grew by 5.5% with a strong organic growth reflecting the rebound of oil and gas services. Finally, it's worth noting that the group organic growth, excluding U.K., would have stood at 2.6%. We maintain our EBITA margin at industry-leading levels, and our EBITA reached EUR 416 million; margin, 6%. Regarding our M&A activity this year. So in line with our model, we completed 4 acquisitions in 2019, totaling roughly EUR 210 million of full year revenue. As you know, bolt-on acquisitions are a key driver to SPIE's growth and value creation. We operate in a very fragmented market, which creates opportunities. In 2019, the average EBITA multiple for our 4 acquisition was 6.7. And so we enter 2020 with some promising targets. As usual, we look at an interesting pipeline for the year. Now let us look in detail at our 2019 business activity by geography, and starting with France, where we experienced outstanding organic growth and further progress in EBITA margin. We saw really a good success of new SPIE France organization. We experienced good business trends across all markets, especially in information and communication services. There is a good momentum in terms of seeing the cloud solutions. Industry service, increasingly focusing on Industry 4.0. And then we also enjoyed the integration of Cimlec Industrie, which has been very positive. Telecom infrastructure service, again, driven by optic fiber rollout. And again, a very strong year in this area. And then commercial installation, we're fairly pleased with slight recovery. Selectivity maintained, meaning that our margins are really progressing. Altogether, operational excellence and overhead optimization were also focus this year. So our EBITA margin was up 10 bps despite the impact from the CICE and the so-called Macron bonus. So in reality, we're looking at a 30 bps underlying improvement compared to 2018. Germany & Central Europe. In Germany, we have a solid market backdrop, and we had an active bolt-on activity in 2019. We continue to see a high utilization of technical resources across the sector. We experienced strong secular drivers of energy transition, energy efficiency, digitalization where we have a balanced portfolio of very innovative customers, especially in the industry. And then we see further development of service portfolio through acquisition of Osmo and Telba, which are 2 very good companies of [indiscernible] We maintained a high EBITA margin at 6.6%, consolidating the outstanding 300 bps progress we made between 2014 and 2018. And importantly, we completed the disposal process of our gas and offshore activity, with the exception of 3 contracts and shared services that are now winding down. As you will remember, this process was initiated immediately after the acquisition of SAG in 2017. Regarding the Central European countries. The growth is driven by Poland and Transmission & Distribution services in Hungary, and we increased our footprint in Austria with the acquisition of Christof Electrics. Now North-Western Europe. In the Netherlands, a strong performance on our historical markets. Really, customers are investing in energy transition and transport infrastructure. Robust industry and building services. We still have the impact of SPIE Infratechniek, so the formerly called Ziut, weighing on margins. There's improvement expected in 2020 through further contract portfolio pruning or renegotiation, and it's happening as we speak. In U.K., which is now less than 5% of our group revenue in 2019, we had a swift response to headwinds. We saw significant revenue shortfall. We are in negative EBITA margin territory. So we swiftly implemented a restructuring plan, and we did see the first benefits in H2. We are now placing our mobile maintenance activity, about 15% of U.K.'s revenue, under strategic review. In Belgium, we have a robust market backdrop, good trends in infrastructure and in industry services, a slight revenue decrease reflecting really a high comparison basis in 2018 and the EBITA margin remained solid. And finally, our Oil & Gas and Nuclear segment. We're really pleased with the strong performance in Oil & Gas Services. Organic growth was close to 10%. We have improved position in West Africa. New maintenance contracts were gained in 2019 as the provider for a solid revenue base in 2020. Middle East, very pleased with the robust downstream activity and effect of the diversification we started a few years ago. And business is now 100% linked to operations and maintenance activities across the whole Oil & Gas segment. And we did see a good EBITA margin improvement in 2019. Regarding nuclear services. Now you will not be surprised if I mentioned that our positions remain very solid with the -- to the French nuclear sector, and the relationship with EDF remains very strong. As planned, we saw a decrease in the Flamanville EPR contract activity, albeit less eventually than expected. This was largely offset by healthy activity levels in general electrical installation and the Grand Carénage. And we maintain a high EBITA margin. So pleased altogether with the situation in nuclear activities in 2019. And now I will hand over to Michel, who will comment on our 2019 financial results.

Thank you, Gauthier, and good morning, everyone. So as Gauthier has already pointed out, we achieved a good performance in 2019. Our revenue increased by 3.8% to EUR 6.9 billion. Our EBITA at EUR 415 million increased by 3.9% versus last year, and we maintained our EBITA margin stable at 6%. Our adjusted net income group share was up 6% to EUR 229 million. And finally, our reported net income was up 66% to EUR 151 million. So please note that the numbers that I will comment today are excluding IFRS 16. You know that for SPIE, this is the first time application this year. And I will do this to facilitate comparisons with last year figures and prior financial publication and also the guidance. This being said, I will mention IFRS 16 numbers as well, as you can see on the right column of this chart, which shows you that the impact of IFRS 16 on the P&L is not significant. As you can see, now on Slide 15, we posted a solid revenue growth, that's 3.8%, with 3.6% excluding Forex. This was achieved on the back of good organic growth, 1.6%. Impact from acquisitions is -- plus 2.2% and a slight negative impact of 0.2% from the disposal of the U.K. overhead lines services completed in June last year. Looking at our group EBITA margin, we achieved a 6% margin, as I said, stable compared with 2018 and in line with our guidance. In France, we achieved good operational performance with a 10 basis point increase. In Germany & Central Europe, the margin remained high at a high level of 6.1%, with Germany stable at 6.6%. North-Western Europe was affected by the U.K., and the margin went down to 2.8%. In Oil & Gas and Nuclear, the strong performance in Oil & Gas helped to reach 60 basis points increase with a double-digit margin at 10.1%. The next slide details the components of the adjusted net income, which grew by 6% in 2019 due to: first, lower net interest cost on the debt at EUR 61 million; lower other financial charges. We show here the financial charges of the pension and also the exchange rate impacts. So while the pension charge is recurring, the ForEx impacts are unpredictable. And last year, it was unfavorable, minus EUR 13 million, while it was favorable this year by EUR 1 million. Then we have a slight increase in our adjusted income tax with a tax rate of 32% versus 24.9% (sic) [ 29.4% ] in 2018. This is due to the sales figure. As you know, it was a tax credit. Now it is a taxable reduction in the social charges. So it increases the income tax charge. On the right side, you see again the IFRS 16 impact, not significant. We remind you that the adjusted net income -- we adjusted the net income by excluding from the reported net income the nonrecurring elements, which leads us to the next slide. In 2019, these nonrecurring items were much lower than in 2018, as you can see on the slide. In particular, the restructuring cost amounted to EUR 7 million only compared to EUR 32 million in 2018. Other nonrecurring elements, minus EUR 2.2 million compared with minus EUR 26 million last year. And the net income from discontinued operation, minus EUR 8 million this year. This is a loss generated by the gas and offshore activity in Germany that we sold. We completed the process in December, as you'll remember, while the loss last year was much higher up to EUR 70 million. So you will find the details of all this element on the annex of this press release. So you can see that our net income rebounded sharply in 2019, plus 65%, for all these reasons. Let's move now to the cash flow. And as you can see on this chart, 2019 was another year of outstanding free cash flow generation at EUR 285 million, very close to the very high level of -- achieved in 2018. It was EUR 288 million. This year, again, it is driven by a strong cash conversion, above 100% at 101%. So our business remained asset-light. As you see on this chart, our CapEx has slightly increased as we are investing in information systems, but the CapEx to sale ratio remains at a low level at 0.7% of revenue, while our negative working capital, you see on the right side of this chart, improved from minus 32 to minus 34 days of revenue. If we look at the components of the working capital, you can see here that a significant effort has been done on receivables with a -- this improvement. We have more accrued income at year-end and the strategic phasing of contract notably in high voltage activities in Germany and fiber-to-the-home in France, partly compensated by higher advances in [ payment ]. We have small variations elsewhere, but the overall improvement, as you can see on the right side, is 2 days versus 2018. So 34 days versus 32. Looking at the debt now. On this chart, you can see that our net debt was reduced by EUR 98 million, so I'm talking here about the debt before IFRS 16 impact. And this was achieved thanks to the strong operating cash flow of EUR 419 million and a free cash flow of EUR 285 million. You see on this chart that the working capital improvement has generated cash -- positive cash impact of EUR 41 million. We had provision utilization for EUR 31 million. And the majority, EUR 20 million, is linked to the pension. And the tax and interest accounts for EUR 109 million. In detail, EUR 64 million for taxes and EUR 45 million for interest. Please note that these items should be higher in 2020 simply because this year, we still use tax losses carryforwards in France, and it will be the last year. So next year, it should go up. And also for the financial interest, I'll remind you that we pay the first coupon of the 219 (sic) [ 2019 ] bonds issued in June. We'll pay the first coupon in June next year, June 2020. So you can see as well that the impact from restructuring and discontinued operation was EUR 25 million overall, EUR 15 million for restructuring. And I'll remind you that this is significantly lower than in 2018 when we saw EUR 57 million cash out. Acquisition represents an outflow of EUR 100 million, and the dividend was a cash amount of EUR 91 million. So the net debt at the end of December is at EUR 1.251 billion. This means, if you look at -- on this chart, deleveraging. And you know that this is one of our objectives. And again, this year, we managed to deleverage the whole group with leverage at the end of the year of 2.7. We remind you here on this chart the financial structure. You remember that we have issued an [ as soon as ] 7-year bond, so expiration of 2026 to extend the maturity of the debt, we have also -- and this is new, we have recently extended the securitization program in France. It was planned to expire in 2020. Now we have extended it until 2023. You see the EUR 300 million number in blue. So the average maturity of the debt now is 4.5 years with no repayment before 2023. With a fixed rate portion, of course, debt is now at 57%. So our credit rating has been confirmed by Standard & Poor's and Moody's and even improved from negative to stable by Standard & Poor's last June. You see that the group's liquidity remained high with EUR 1.5 billion -- close to EUR 1.5 billion, including close to EUR 900 million of cash and EUR 600 million of undrawn revolving credit facility. You can see as well on this chart on the right side, on the bottom, the IFRS 16 impact. That represents EUR 340 million of noncash increase. So we are talking here about commitment -- a lease contract commitment accounted as a debt, and it has an impact of 0.2 on the leverage at the end of 2019. So thanks to this strong performance, we will propose a dividend of EUR 0.61 per share. This represents an increase of 5.2%. And you can see on the right side of the chart that since the IPO in 2015, the dividend compound average growth has been 5.1% per year. So on this dividend of EUR 0.61 per share, I'll remind you that EUR 0.17 had already been paid in September 2019. And the remaining, so EUR 0.44, will be paid all cash in June 2020. As every year, an interim dividend will be paid in September 2020, representing 30% of approved 2019 dividend. Thank you, and I will now hand back to Gauthier.

Thank you. Thank you, Michel. I will now touch on SPIE's corporate social responsibility, which for us starts very much with the nature of our services. Our services are very much contributing to climate change mitigation. And this year, we wanted to take advantage of the very recent EU taxonomy to quantify it. We're one of the very first listed company to apply this taxonomy. So for those of you who are less familiar with the EU taxonomy for sustainable activities, it is a classification system that determines which economic activities have a substantial impact on climate change mitigation or adaptation. And it helps to calculate the green share of any company's revenue according to a common, standardized and stringent framework for all EU countries. Based on this taxonomy, around 35% of our revenue comes from activity that has a substantial impact on climate change mitigation. In our case, such activities are enabling activities. This is services enabling a substantial reduction in carbon emissions by our plants. The activities eligible to the green share are mainly building technical system delivering energy savings under certain criteria, electricity transmission and dissemination services in countries following a decarbonization trajectory, services to clean mobility infrastructure, services to renewable energy power station and LED re-lamping for public lighting. Some of this criteria are quite stringent, in particular, for energy renovation with the taxonomy on renovation work delivering at least 30% energy savings. I will not go through too many technical details, but let's focus on some contracts or activities that are constituents to this green share. So talking of the building technical systems, you see, example, in France, in Germany, in -- and for some banks or for some industrial activities, where really we're able to reduce significantly the energy saving. And again, we're only looking at the activities in this taxonomy reducing by more than 30%. Obviously, if we are to look at all the energy savings SPIE is able to manage, we'll have a much higher share. In electricity transmission and distribution, this pertains to all services performed in Germany, France, Netherlands and Belgium because of the trajectory of this country regarding CO2 -- for energy mix and CO2 footprint. For instance, a country like Poland would not be eligible at the moment regarding this type of services. So you see we have an example in Germany with a very long-standing customer like Bayernwerk; for Elia in Belgium; or obviously, Tennet in Netherlands, where we're the first player with Tennet in the Netherlands. And then services to clean mobility infrastructure. Obviously, electrical vehicle charging infrastructure is very -- taking a lot of importance now. And we're also working to develop low carbon public transport, like we did in Brussels. We have a lot of activity since many years for the Brussels public transport systems. Services to renewable power station. So an example of a large photovoltaic power station in Hungary of -- involved in the offshore wind farms in the U.K. and more traditionally, replacement of lighting by LED in -- for public authorities in France like this one in Tain l'Hermitage. As I said, this taxonomy is recent. In fact, it is still a work in progress as only 2 sustainable development objectives out of 6 are covered today by the taxonomy. So this taxonomy will continue to evolve in the near future. And we will adjust our methodology accordingly. But we saw that it would be very important for SPIE and for our teams to re-embark on this measurable systems right now. Valuing human capital is obviously key to our business. And we pride ourselves in having a very committed workforce. Voluntary turnover is low. And 1/3 of our 47,000 employees are shareholders of the group. We focus a lot on gender equality at recruitment stage. 16% of women in 2019 were part of the recruitment. And all along our careers, so we have developed a very strong and efficient So'SPIE Ladies network. In France, we scored 84 out of 100 on the equal pay index. This is an encouraging result, but we want to do better, and we're working at it. And last, but not least, safety at work. It remains our #1 priority. I keep saying our first responsibility is that all our employees go back home safe every day. And this is a constant message that we are spreading to all our troops. But obviously, we focus a lot on organization, systems and resources to make sure that we achieve this sort of excellent level in terms of safety performance. As you see, in 2018, we achieved a 20% reduction in the number of severe accidents. And this year, we see the key area of focus. So we are best-in-class in this area. And as you see, we extend this focus to all the companies we acquire. And you'll see on the top right part of the chart how efficient it is when we acquire new companies to get them into the SPIE systems and most importantly, the SPIE safety culture. So turning to the 2020 outlook. And as we look at 2020 right now, we have no tangible impact from COVID-19 on our business so far. However, obviously, a key assumption to our guidance is that there will be no major deterioration of our business conditions related to the epidemic. Under this assumption, we expect continued solid total revenue growth at constant currency; full year revenue to be acquired through bolt-on acquisitions in the order of EUR 200 million; an EBITA margin of at least 6%; sustained strong free cash flow generation, leading to a leverage lower than 2.5. Our previous target was around 2.5 at the end of 2020; and we'll see dividend will remain at 40% of adjusted net income. In this time of uncertainty, I would like to conclude with a reassuring message. This current situation will subside, and we will come out facing the same secure trends, energy transition, digital transformation and which might also lead to structural change in global production and distribution. And who knows, we might end up on the beneficiary side of this reorganization. So thank you very much for your attention. Michel and I are now available to answer your questions.

[Operator Instructions] Our first question comes from the line of Charles Scotti from Kepler.

Yes. I've got actually 4 questions. The first one, a very practical one. Can you tell us what will happen if your employees were not able to go to the client's premise? Can the client put an order -- the contract during this period? The second question on the U.K. Can you tell us the loss -- the EBIT loss in the U.K. in 2019? And what do you expect for 2020? And also, can you give us an idea of the profitability of the U.K. mobile maintenance business? The third question on Oil & Gas. Can you remind us the share of fixed and variable cost in the Oil & Gas business? And can you confirm us that you have no exposure to shale gas as well? And last question, Germany was a little bit disappointing in Q4 in terms of like-for-like sales growth. What should we expect for 2020?

Right. So in terms of access to premises, I think a lot of what we do is mission-critical. We maintain hospitals. We maintain public authorities' systems, including for the Ministry of Defense, for the police, et cetera, and many other examples of the kind. So, so far, obviously, there has been no change to our business, and we are closely monitoring the situation with regard to the health of our own people, and we have seen constant dialogue with our customers. A number of things can be postponed. So it means that it will be not completely lost. But obviously, it will be regained later in the year if it was to be postponed now for a couple of months. But also, a number of things have to keep happening. A lot of what we do is working outdoor anyway. And even when we maintain buildings, we're more often in the basement mending the boiler room than in the ballroom. So it's -- we are looking now at ensuring continuity of services with all our customers. Regarding U.K. We had a -- our loss in 2019 was a couple of million. We expect -- and as we said, we're back in positive territory in H2 for following the restructuring we did. We, so far, expect 2020 to be slightly better. And specifically, the mobile maintenance, which we're taking stand -- look at right now has been loss-making and has deteriorated towards the end of the year, and it's not showing too well right now. So this is something we are looking at very, very closely. The balance of the business, we had a decent start of the year in the U.K. with no activities coming, as expected, with our main customers such as Versailles and also large data centers. Regarding oil and gas, we -- first, we have no exposure at all to shale gas or shale oil. Not at all whatsoever. Our costs are very variable. We have obviously trimmed our overheads very significantly the past years. And we have a very flexible employment conditions all across the group. Compared to the situation a few years ago, we are no longer exposed at all to any activity linked with well services. The OCTG activity, for instance, is now 0. And so we're really involved in OpEx and maintenance. And as you know, 1/4 of what we do is involved with the downstream activities. So, so far, we had a very good start to the year in oil and gas, and we are working on our assets. We have renewed maintenance contract to the last of -- the last part of last year. So a good start so far. And regarding Germany, I think we should not jump to conclusion regarding our organic growth from one quarter to the other. As it is, we see -- we had some variation in terms of some contracts with -- especially with data centers compared to the year before and linked with the Lück activity. And altogether, we're looking at a good start of 2020, where, clearly, for the beginning of the year, we're in positive organic territory in Germany. Business trends remain very solid. And again, our activity in Transmission & Distribution is really looking very good.

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

One follow-up on Germany please. So if we look at last year overall within the kind of flattish growth, could you maybe comment on how much actually was coming through from Transmission & Distribution versus other things and then whether that is actually going to pick up in 2020? Related to that, you were obviously talking about staff shortages in Germany. Could you give us any detail around how that's developing given there have been layoffs across the industry? And then on the U.K. business again, could you give us just the revenue of that -- of the business you're going to be selling, please? And in terms -- if it was to stay with the group in 2020, could it be the case that the overall business is still loss-making? And then finally on cash. So you talked about cash taxes probably picking up in 2020. Could you maybe give us a bit more color around the moving parts of free cash flow, including cash tax, cash interest, working capital and CapEx?

Regarding organic growth in Germany is we -- as I said, is we had some decline compared to last year in the installation activity actually linked with this spread over the year of seasonality of our data center activity. We're in positive territory regarding Transmission & Distribution. So it's really linked to this other part of the business, and we're slightly positive also in our Tech FM business in Germany last year while maintaining very high level of margin. And as I said, we see a good start in the year in this -- in Germany right now. The U.K. mobile activity, as I said, contributed to the loss last year, and we're working hard at the moment to first to evaluate the situation and look at our options for this business. So we expect that it should not contribute to a loss -- for the U.K. business overall. Well, we think that the U.K. business will be in positive territory overall within this year. And so I'm looking at it right now. And regarding -- obviously, if there's some restructuring for this activity and there will be some cash impact, which we do not expect to be major and which is accounted for in our expectations of leverage for the year. And regarding the cash for 2020, I will hand it over to Michel.

Yes. The question is, of course, relevant because, as I mentioned, we will have an increase on the interest first simply because in 2019, we paid the term loan for the first half year, and then we reimbursed the term loan with the bond we have issued, but we didn't pay the coupon of the bond because it is -- it will be paid in June. So the coupon is about EUR 15 million. So if you take into consideration this EUR 15 million, of course, we will not pay anymore the bond, so you have half a year savings on the bonds. So overall, the net should be an increase of EUR 10 million. In terms of tax, we expect the tax charge to be closer to the P&L now. And since we have used our tax as carryforward in France, so it will be closer to EUR 100 million for 2020 cashout. These are the 2 main changes on the free cash flow elements compared with this year. And of course, we expect lower cost on -- I mean, on restructuring and discontinuing.

Okay. The 2.5x net debt to EBITDA, could you just confirm that, that includes all the bolt-ons that you're planning to do?

Sorry, the 2.5? I didn't get it.

Just the net debt to EBITDA guidance for 2020. That includes obviously all of the free cash flow guidance you've just given us. And does it include any future bolt-ons that you think you will complete?

Yes, of course. Of course, it's already included. I'm talking about excluding IFRS 16 because we want to be consistent with the current disclosures. Below 2.5 excluding IFRS 16.

The next question comes from the line of Chirag Vadhia from HSBC.

Just 3 questions for me. Firstly on France. Are you seeing perhaps a more rational pricing environment from competitors where you're seeing maybe perhaps quality starting to win over price? And second of all, just on oil and gas. Given where commodity prices are now, how do you sort of see growth playing out for this year, say, to stay where they are? And finally, just on the growth rate last year, you targeted between 2.5% to 4.5%. Do you see a similar sort of growth rate for this year?

So regarding the pricing environment in France, we have seen some improvement in the commercial business, and it helped us progress on margins in this sector this year, so we do see some -- a bit more discipline in this area. The other sectors, I think, had improved over the last year. So this is really the -- this was a tougher nut to crack, and it looks slightly better as we speak. For oil and gas, more obviously, it is very early to [ assess ] the situation. All what I can say is first, we have a good visibility on our maintenance contracts. And as I said, we have renewed or gained new ones, so we had a good position to start with. And the oil companies have been -- have done a lot in the past. And so now they're cash-neutral. Barrel price is much lower than it used to be. And I think when you speak of Totals and looking at $35. So it's -- I think it's a different situation, but it's obviously too early to make assumptions. Again, our business is not with any sort of exploration, and we gain a lot of stability for maintenance activities.

And the final one just on the growth rate. Last year, you're looking at 2.5% to 4.5%. Is it a similar case this year?

Well, it's -- there is some -- we -- it's linked with the phasing of acquisition from one start, and then it's not very easy in our business to forecast our organic growth very precisely. And especially now from 1 quarter to the other, that's clear. So -- but overall, we expect the growth this year to be not dissimilar from last year.

The next question comes from the line of Peter Testa from One Investments.

I was wondering if you could give us a bit of an understanding on France as you go across Q4 and in Q1, I mean, obviously, Q4 was a high comp and strange calendar. But can you give us some understanding as to how the calendar influenced Q4 and how the start is in Q1 and 2020, please? First question.

Well, again, as very soon from 1 quarter to the other, which are not really meaningful, it depends on the, first, how many days you have in a given quarter of production, et cetera, and then you have some variations in terms of whether the contracts happened or issue a larger piece of equipment if it impacts your production figure for the month. And so it's -- we do not jump to conclusions in terms of a certain quarterly organic growth. And remember, Q3 was a much higher organic growth. And as said, it's pleasing, but it doesn't mean a lot. So altogether, I think what's important is to look at the 4.5% growth for the year, which was really a solid growth in France and which we have not experienced for quite a while and which was the combination of an encouraging market and a very performing organization. And all I can say towards the beginning of 2020 is that we are in positive organic growth in France so far. And we see very encouraging business conditions until now. And certainly, when we have a good backlog, I think we have a very encouraging backlog for the year. But that's all I can say at this stage.

Would you say the backlog that you have at the moment, it gives you good visibility over H1 with a similar growth rate to last year or not ?

Right. Again, it should not -- I mean, it's difficult for -- to restate even for a couple of percent, but we will certainly -- we see a good start, and we see a good basis in terms of what we have to do. So we are confident for the beginning of the year and for H1.

Okay. And then on the German margin. Was there an M&A impact on German margin last year that you can quantify?

No, not really. No.

Okay. And then on the tax rate going forward. When you go into 2020, what do you think the tax rate will be in percentage?

I think it will be -- now I'm talking about the adjusted tax rate. So I think, first of all, we don't -- we think it would be in the same range, same range. I'd just take the opportunity to mention that compared with last year, last year was very special because we had some -- we had positive impact from, I would just say, if we talk about adjusted net income. Now if you go to the financial statements, you will see that effective tax rate was much lower, 14%, and this year was 41%. So last year, we've had positive elements like the reversal of tax provisions. We have permanent differences positive. So one-off, that will not repeat it that won't counting from something like 25%. So excluding this one-off, the tax rate would have been 39%. I'm talking about the effective tax rate so -- but I think we should be in the same range between what we should have been last year and what we have done in 2019 and the same for the adjusted tax rate -- adjusted from nonrecurring element.

Okay. And the last question is just to kind of go back to the subject of flexibility around the current situation. So 2 topics. One is if you could give some sense in the different major countries, France, Germany and maybe Benelux. What sort of employee flexibility you have in the short term, the extent to which you can, for example, recapture time -- holiday time in August through the -- if you have to give holiday time in May or April? And the other is just the extent to which your contracts with clients have a force majeure-type clause like COVID with cover that allows you some flexibility to use that also with the clients vis-à-vis execution.

I think -- well, first off, on -- the cost base is flexible. We have 15% to 20% temporary workers, yes, compared to the permanent workforce. And you add to that a similar amount of workforce from embedded in the subcontract. So we have a strong flexibility of the workforce as such and our cost base altogether. On top of that, the government are kicking in at the moment, be it in France or in Germany. You're looking in Germany what they call Kurzarbeit and in France, chômage technique which are both ways of getting subsidies from the government if people have to remain at home for a while and so to offset the cost. Also regarding the contractual arrangement, for instance, in France, in the public contracts, the issue of the coronavirus has to be considered as force majeure. And there is a strong push that the private customers have to adopt the same rule. So there's quite a drive from the government to protect the companies at the moment.

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

It's Rory here. Just 2 for me please. Firstly, on the working capital, what's behind the increase in accrued income days and the decrease in build receivables? It was quite a different movement.

First of all, accrued income, it's mostly where we have 2 elements: one in Germany, one in France. So one in Germany, simply phasing of contracts. So at year-end, because it was really punctual, as I may say, in December because we were on a good side just a month before, so it's simply a phasing of invoicing versus recognition of revenue. And also in the fiber-to-the-home business in France, we had some -- also some accrued income there increasing in this business at year-end. For the receivables, it's simply a strong effort made on the cash collection. So it's general; it's everywhere. So there's no country impact particular. It was a good work done everywhere. We had also the impact, but it is limited -- EUR 13 million impact of the increase of the factoring in Germany, but it's quite limited. It's gone for less than 1 day. But overall -- so it's a good performance everywhere from the accounting and commercial teams.

Okay. And then Gauthier, on this new year you reported 35% green share of revenues, I appreciate, it's early days for many companies, so it's great you've given the detail. Is it fair to assume these areas are also higher growth than average? And do you expect growth here to accelerate particularly if, let's say, fiscal spending picks up in Europe over the next year or so?

Well, I think, for instance, when I look at our activities in Transmission & Distribution, be it in -- so this is overhead line and substation and distribution networks, when I see the level of activity and the level of backlog we have in France, in Germany, in the Netherlands, in Belgium and even in Poland where, as I said, it's not eligible to the green share, but it's really a very strong push. So clearly, then all the issues of energy savings will also see a strong push from many, many customers. And then they're achievable -- and we enjoy 10 -- double-digit growth for the recharge points at the moment. And so first, we see the green mobility for public transport. So yes, I think you -- it will support our top line, and it will be a lasting effect for the years to come, if not increasing. So I think it's a very good position as a company. Luckily, we don't have to chair, right, so it's part of our roots and part of our DNA to be in this sort of activities. And I think that the market is really coming towards us in this regard.

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

First, really simply, as you showed that the organic growth would have been 2.6% excluding the U.K., do -- should we expect organic growth to accelerate next year if there is an improvement, say, at the group level? Second question on M&A. Can you give us an idea of where is your focus in terms of target? Obviously, I guess, Germany, but in terms of segments and geography? Or do you also look at France? Then also CapEx. What should we expect for next year as you had some more investments in IT, I understood, this year? And then finally, fourth question for oil and gas, you said that you have a lot of maintenance that is already in your backlog. But should we expect organic growth to be flat? Meaning that you will be resilient versus the certain CapEx that can be expected in the sector but no more growth? What's your view here from now?

So regarding organic growth, it's obviously a bit early to tell and especially in the context where we -- there is an element of [ surprise ]. But we -- for instance, if I look at the beginning of the year, in the U.K., we're in positive organic growth compared to last year. So I think it should weigh less on our top line definitely. Regarding M&A focus, it's very much in line with what we have done in the past, and clearly, we want to further grow in Germany. And it's -- as we said in the past, it is really an area of focus. And if I compare it to the nearly EUR 3 billion, we do know in France, if I include the nuclear, the French -- and if I add the nuclear to the French segment, it's near to EUR 3 billion. And then so we see Germany should end up one day to be 150% larger than that. So we have room to double in Germany. So clearly, organic growth -- I mean, external growth in Germany, we remain focused. And in terms of type of competence, we have obviously a lot to do in Germany regarding industrial services and generally in the group, we'd like to be -- continue growing our ICT activities. And regarding CapEx, -- Michel -- I will hand over to Michel to give more detail, but let me first answer the question regarding oil and gas. So we were clearly -- until 2 days ago, we're really planning to have a further growth this year in the Oil & Gas segment. A lot of it is embarked in the contracts we -- in the maintenance contract we already have. So it's early to say, but I think we should -- first part, of course, is to expect some stability for Oil & Gas this year.

Yes. And for the CapEx, so we have now 0.7% of revenue. I think that we should be in the same range for 2020. No real change.

[Operator Instructions] And the next question comes from the line of James Winckler from Jefferies.

Just first one on guidance, which was touched on previously, just fewer numbers. And I'm wondering if that's sort of anything there or you just took a different approach in terms of communicating it. Specifically, there's no reference to 100% cash conversion, which I imagine you reiterate in terms of that is your goal again this year. And then specifically with reference to the leverage of under 2.5, it just seems -- that seems quite conservative if you assume another 100% cash conversion. I'm wondering if that's just to account for some uncertainty right now. Obviously, you said that it doesn't account for any material downgrade in terms of economic activity from COVID, but maybe it's giving yourself a bit of flexibility in that comment there. Secondly, on the debtors, the A to A improvement, as you touched on previously as well. Wondering if there's more -- if you view there's more to do there in terms of improvement to next year, or stability in terms of days of debtors should be assumed. And then lastly in terms of the margin within Germany and Central Europe as a division, commented that Germany was flat. But as a division, it was backwards 10 basis points year-over-year. So I'm assuming that the margin pressure came all in Central Europe. I'm wondering if you could add some color into expectations of Central Europe, I guess, as a whole into next year in terms of margins. And then lastly, sorry, just to expand on the oil and gas outlook. You said more, like, stability after the collapse of the oil price rather than growth. But in terms of margins, do you have any comments in terms of how to think about margins for oil and gas next year?

Well, I will answer this last bit first. In terms of margin for oil and gas, we've been -- we have a history of resilience all across the various things that happened in the past. So clearly, we'll be resilient again, and we have a very good level of margin in oil and gas, and we will maintain it.

Now concerning the working capital, it's true that we have made again good progress this year. In fact, if you remember, when we guided for this year, we were expecting to stay at the same level, which was because what was achieved in 2018 was already pretty very, very strong improvement. In fact, we did better. So our goal will be to try to maintain this level. This is about what we said last year, and we did better. So I don't know if we will do better in 2020 but at least maintaining this level would be a good performance. Now regarding the cash conversion, it's true, we did not really guide on cash performance, and it was done on purpose. Why? Because when you look at the IFRS 16 impact, the cash flow is -- when you look at the free cash flow, so it's EUR 368 million, for instance, for the IFRS 16 impact. So we would -- we have guided -- we would say that we'll have a strong cash flow generation. I think this is what is the most important and also the deleveraging. So the -- it doesn't mean that we will not continue to provide and work on the cash conversion internally. But with the IFRS 16, we believe that the definition is a little bit meaningless. I mean that if you take IFRS 16 in 2019, our cash conversion is 121%, you see. So it's an in-house metric. It's not widely used. We will continue to follow it internally, excluding IFRS 16. We'll continue to report it, but we prefer to shift our guidance to the free cash flow and the leverage. I think it's more -- it will be easier to follow in the coming years due to this change.

And then just lastly if I may just ask in terms of nuclear within the oil and gas nuclear as a division. Wondering how long you'd expect the reduced activity albeit less than expected within Flamanville to impact through next year and sort of what your growth expectations for nuclear would be as well.

I think in nuclear, we see it's a long-term very robust business. And then from 1 year to the other, there are fluctuations. As we said first when linked to the decrease in the Flamanville, but this is now coming very, very small in our books. And then the second element of fluctuation is the phasing of the various Grand Carenage activities linked with where we work and what -- when in the year is the shutdown planned. So it varies from 1 year to the other. That doesn't mean a lot in terms of solidity of the business. And specifically for 2020, we see -- we have good prospects for the year and -- but again, it is never a double-digit decline, and it is never double-digit growth.

Okay. Sorry, and the one that I had previously that I forgot about was the Central Europe margins.

The nuclear margins?

No, sorry, the Central Europe, Central Europe.

Central Europe margins. Yes, I mean, they remain at a good level, and then you have -- we have fluctuations. The whole segment is about EUR 2 billion, so 10 bps, you're talking EUR 2 million. There's some fluctuation with contract phasing, et cetera. So -- and especially in Central Europe because this is even a smaller part. You're looking at EUR 200 million, EUR 250 million.

The next question comes from the line of Peter Testa from One Investments.

Just 2 questions. One, just on the cash conversion question that was just asked. If you take the slide on Page 19, where you give your track record of free cash flow conversion, excluding a major corona problem, would you expect that track record to be matched or similar in 2020?

If we talk about the free cash flow, it's difficult to predict. I gave a few elements on the taxes and on interest, for instance. Overall, I think what is important is to refer to the guidance on the leverage, which is quite positive because we have improved our guidance. We were initially targeting 2.5, and now we say we'll do better. So how does this translate into cash flow and cash conversion, it should be similar, but don't forget that IFRS 16 will change all these parameters. So this is why we are referring to deleveraging excluding IFRS 16. Otherwise, we will lose a bit track on what we -- of course, will it continue? As I said, we will continue to provide the elements excluding IFRS 16. But I think over time, it will become more and more difficult because, I guess, most analysts will also update their model, move to IFRS 16. The regulator asked us to provide the numbers now, the IFRS 16 only. So we will still continue to help for the understanding of the evolution of the performance and the numbers. But this is why we are trying to shift the guidance to anticipate that.

Yes. No, I understand that. It's just I think you answered an earlier question that the guidance of less than 2.5x also includes bolt-on acquisitions that you expect to make in 2020.

Yes.

So therefore, it's just hard to understand the difference between operating cash and total cash. That's all. Hence, we're looking -- they're looking to try to get a sense of operating cash. Yes. Okay. Then the other question was just on -- there is a certain amount of talk on fiscal activity coming out being provoked by the coronavirus. If you take in Germany, for example, you have had a labor shortage, which is probably less acute now than it was last year. If you -- if something did come out in that regard, pushing, for example, green agenda or distribution and investment, would you be in a position to take advantage of that?

Well, I think we -- well, first, we have worked a lot internally in terms of training people, and we have a very high apprentice rate now in Germany in the range of 5% with a very good conversion rate, and we hire about 90% of our apprentices in Germany. So the company is attractive to them, and we train them well. And then when we look at Germany at the moment, you see that -- I would say that the labor situation tends to ease up a bit because of what's happening in the automotive industry. And so we think that, yes, we are able to cope with the need for additional workforce. And clearly, not all the sectors are moving at the same pace, but in our type of activity, we expect to see growth in the future linked with the green element in Germany definitely.

We have no further questions in the queue. So I'll hand back over to your host for any concluding remarks.

Well, thanks all for your attention today. You see this is a peculiar context at the moment, but I think we should remain confident in the ability of SPIE to weather this situation. Again, our services are mission-critical. We enjoy a very wide and resilient base of -- and diversified base of customers, which makes us very resilient, and we're really looking at delivering a good year, nevertheless, in 2020. Thanks a lot for your attention. And as you know, we plan for an Investor Day on May 13 in Paris, which will be focused on ESG. Thank you.

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