SPIE SA (SPIE) Earnings Call Transcript & Summary

Hello, and welcome to the SPIE Full Year Results 2022 Call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Mr. Gauthier Louette, Chairman and CEO; and Jerome Vanhove, the Group CFO, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. Thank you for attending SPIE's conference call for 2022 full year results. In 2022, we did deliver an excellent performance. For the first time, we cracked the EUR 8 billion revenue and EUR 0.5 billion EBITA marks. In the context of sharply rising energy cost and growing evidence of the climate crisis, we provide highly valuable services for industry decarbonation, e-mobility, building efficiency or smart city, we are definitely part of the solution. Let's first discuss some good examples to highlight our expertise. In Germany, we designed a new gas pressure regulator suitable for both natural gas and hydrogen. This project will allow hydrogen share of up to 100% to be fed into the production process, steadily reducing the level of CO2 emissions, provided, obviously, that the hydrogen is green, which is the trend nowadays. Our client is Deutsche Engineering Group, with whom we share a long-standing partnership for some 30 years. Hydrogen is increasingly seen as a key element of the road towards climate-neutral industrial processes. On Slide 4. In Dubai, SPIE Oil & Gas Services is supporting TotalEnergies under a 3-year maintenance contract for solar farms. We are in charge of preventive and curative maintenance with real-time performance monitoring, a preventive maintenance program, including the deployment of cleaning robots and intervention in the case of failure or underperformance of the infrastructure. With such a project, SPIE Oil & Gas Services is continuing its diversification into renewable energies [ tagging ] along its main customers. On Slide 5. In Poland, for the LUBAN Municipality, we installed modernized street lighting. We are replacing more than 1,600 sodium luminaires with LEDs. We installed photometric measurement to optimize luminance and illuminance. And with this project, we target more than 600 megawatt hours of savings per year, roughly 50% of savings compared to the previous [ years ]. Slide 6. Now in France, we will install components in the 62 towers for the Saint-Brieuc offshore wind farm, with a total capacity of close to 500 megawatt. It will be able to produce clean energy to cover on a windy day 9% of Britain's total consumption. For SPIE, this project involves a mechanical and electrical assembly of all of the internal parts provided for the towers of the wind turbine, and we also coordinate logistics of the polder. With this project, we are now present on all the offshore farms being developed in France. You will remember that last year we were present in Courseulles and Fecamp. Before moving to the key highlights of the year, I would like to thank our employees for their commitment. They are our main assets and also our first shareholders. Our last Share For You program, the -- 6 since our IPO in 2015, was a great success with 13 countries involved and 11,000 employees participating. At the end of 2022, nearly 15,000 employees are shareholders of SPIE, and altogether, employees at management role 8.5% of the group. We're also very pleased to have 2 long-term shareholders, Bpifrance at 5.6% and Peugeot Invest at 5.2%. Now let's move on Slide 9 to the key highlights of the year. In 2022, we did deliver excellent performance, showing once again the relevance and the strength of our model, and once again delivering on our guidance. We achieved a record level of organic growth, a continuing EBITA margin improvement in an inflationary context, another year of strong cash generation and a significant increase in our free cash flow, while our leverage ratio reached an all-time low. A sustained M&A activity with 5 bolt-on acquisitions completed, and with Worksphere being now fully integrated. Our sustainability KPI evidenced a strong dedication of all our teams to deliver on our commitments. And finally, we concluded with strategic review and successfully disposed of our U.K. operations. Overall, 2022 demonstrated once again the agility of our model, our unique positioning, proven pricing power and permanent focus on operational excellence. We until 2023 with a record order backlog and very strong market fundamentals. And I am in no doubt that the commitment and expertise of all our teams will bring further value to all our stakeholders. Looking at our key numbers on Slide 10. I'm very pleased to report an excellent set of results and best-in-class cash generation. Organic revenue growth reached 6.9%. This is a record level for the group. Total revenue growth was at 16.1%, enabling the group to break through the EUR 8 billion revenue mark. Our EBITA margin was at 6.3%, up 20 basis points. Our EBITA is now above EUR 0.5 billion, that's EUR 511 million. EPS was up 23% with adjusted net income slightly above EUR 300 million. In 2022, we also had a sustained M&A activity. We acquired EUR 155 million of revenue for 5 bolt-on acquisitions, plus EUR 400 million of revenue coming from the integration of Worksphere in the Netherlands. We generated EUR 315 million of free cash flow and our leverage versus the all-time low level of 1.6x at the end of '22. Thanks to our strong results and in line with our dividend policy, we will propose a dividend of EUR 0.73 per share at our next AGM, up 22% versus 2021. On Slide 11, let's have a look at our organic growth. We did show an acceleration throughout the year. 2022 started with many uncertainties worldwide. We've been able to successfully navigate through the macroeconomic environment, and our organic growth has been accelerating quarter after quarter to reach 10.2% in Q4. As for Q3 and Q4, the [ government ] is driven by volume and the more significant price effect compounded with a low comparison basis as these 2 quarters were still impacted by the last wave of COVID infection in 2021. Looking at EBITA. At group level, EBITA margin improved by 20 basis points to 6.3%, with progress in all key regions. It is interesting to note that France and Germany, the 2 major contributors to EBITA achieved also the best margin with a 6.5% level. Northwestern Europe recorded the best improvement, up 80 basis points. Oil & Gas and Nuclear maintenance and margin at a high level of 9.5%. And we are convinced that our margin will continue to increase in 2023. As evidenced by our results, our plan to tackle inflation did succeed, and let me go back on the key levers to protect and even increase our margin in an inflationary context. Regarding protection, we had efficient levels of action, such as indexation clauses in the contracts, shorter validity of our offers, the usual short-term cycle of our activities and, of course, the close monitoring of procurement cost and the daily updating of the relevant database. And regarding increase of the margin, we benefit from proven pricing power. Combining a growing customer demand, our mission-critical positioning and added value innovative solutions, pricing discipline and quality of execution remain outstanding, and the market dynamics [ allow ] us an even more selective approach. Regarding bolt-on acquisition alongside organic growth. As you know, it is the other key pillar of our value creation strategy, and we will see organic growth at good margins. In 2022, we completed 5 acquisitions, 1 in France, 2 in Germany and 2 in Poland. The cumulative full year revenue acquired is EUR 155 million, as you well know, our markets are very fragmented for many acquisition opportunities and we have an active pipeline going forward. We conduct a proactive sourcing of target locally and centrally in [ current ] with our aim to offer the whole spectrum of SPIE services in every country where we operate. On top of bolt-on, this year has been very busy with the acquisition of Worksphere. It has been a key strategic move in the Netherlands. This midsize acquisition is very interesting. It is highly synergistic, low risk, and it offers the capacity to quickly replicate the SPIE model. We are now the #1 player in the Netherlands with EUR 1.3 billion in revenue, 5,800 employees and the partner of choice for over 2,500 customers throughout the country. For this integration, 25 work streams were organized to make this integration a success with 50% of cost synergies already delivered,, SEK -- EUR 6 million of order intake related to cross-selling opportunities. The good registration is our support for ASML for engineering and maintenance projects, where we brought together the expertise of PICT, SPIE Industry and the newly acquired Worksphere, and of course, SPIE Building Solutions. We registered a very low level of resignation linked to the acquisition. Stronger employer brand is attracting new highly skilled technical talents, and we have now a high density of our local network. I will now go more into the details of our 4 business segments. So regarding France on Slide 16. We enjoyed a strong dynamic across all our markets, and we further increase our EBITA margin. Revenue grew by 9.6%, of which 7.6% was organic and 2% came from acquisitions. Our Tech FM activities benefited from a growing appetite for energy efficiency solutions and energy performance contracts. In the industry, electrification and decarbonation is now a major trend and is a key driver for the dynamic of our services. Building Solutions is boosted by energy renovation requirements and the new approaches in office buildings that implies the densification of technologies per square meter. City Networks is mainly driven by e-mobility and smart city solutions such as public lighting and traffic management. The 30 basis points improvement of our EBITA margin demonstrates our operational excellence and our pricing power. In Germany and Central Europe, we recorded a strong performance with 11.2% revenue growth, of which 5.3% was organic and 5.8% came from acquisitions. In Germany alone, organic growth was up 5%, and we further improved our EBITA margin by 10 basis points to 6.5% in Germany, on a par with France. In Tech FM, we enjoyed the high success rate in renewing or extending contracts. Here also we have strong demand for energy efficiency solutions, and we gained numerous contracts in the logistics sector. ICS was boosted by managed services and unified communication activities as well as digitization projects in health care. Growth in High Voltage activity has been limited to some phasing effects. However, I would like to stress that our order backlog in this area is at an all-time high, fueled by multiple projects induced by the change in energy mix. In Central Europe, we recorded a double-digit organic revenue growth, with Poland and Austria leading the pack. The strengthening of our positions through acquisition over the last 2 years is bearing fruit. In Switzerland, the ICS activity is still constrained by some supply chain delays. On Slide 18, North Western Europe. We recorded a significant EBITA margin increase of 80 basis point to 5%. Revenue growth was at 39.5%, fueled by acquisition, we see at 32.6% with Worksphere, while organic growth was a solid 6.6%. In the Netherlands, we enjoyed a strong momentum in High Voltage activity and Industry Services. Worksphere, now SPIE Building Solutions, brought a dynamic level of activity in Tech FM and our EBITA margin continued to improve since performance initiatives conducted within the historical perimeter. In Belgium, we posted good trends in Building and Industry Services and the EBITA margin was broadly stable. And finally, the disposal of the U.K. business was completed on December 19th, but U.K. was still consolidated for 12 months in 2022 with an EBITA margin back in positive territories. And now looking at our Oil & Gas and Nuclear division. Overall revenue rose by 14.2%, including an 11.9% organic growth -- 11.9%. The positive 3.6% impact from currency was mainly due to the U.S. dollar-euro parity. EBITA margin was stable at a sustained high level of 9.5%. Altogether, the Oil & Gas activities were very well oriented with a strong momentum. And this activity now enjoys good midterm visibility, thanks to its record order backlog, including several multiyear contracts. Nuclear Services recorded a limited growth due to the changes in maintenance planning EDF had to deal with, because of the weld, repairs issue they had to face. EBITA margin was at the usual high level. And now I will hand over to Jerome, who will comment on our financial performance.

Thank you, Gauthier, and good morning, everyone. I'm on Slide 21, starting with an overview of our P&L. Once more, we did deliver an excellent performance in 2022, and I would like to highlight 3 figures, especially. EUR 1.1 billion of additional revenue in 2022, translating into a 16.1% of total growth, plus 20% of EBITA increase compared to last year, resulting from the combination of a significant top line growth and an improved EBITA margin. Finally, plus 23% in the adjusted earnings per share. Moving to the revenue bridge. In 2022, we recorded a 6.9% organic growth contribution from acquisitions accounted for a growth of 9%, of which 2/3 related to the consolidation of Worksphere for 11 months. U.K. activities remain consolidated for 12 months in our fiscal year 2022 and accounted for EUR 250 million in revenue. The disposal figure refers to 2 minor divestitures, one in France, one in the Netherlands. Finally, the ForEx impact is mainly attributable to the euro-dollar parity and related to Oil & Gas activities. Now looking at the bottom part of our P&L. EBITA was up 20%, and adjusted net income was up 24%. Indeed, adjusted net income increased faster than EBITA, thanks to a stable cost of our debt and a slightly lower normative tax rate. In detail, our net interest cost increased by only 7% year-on-year, and this is explained by, a, the stability of our gross debt, the cost components of our debt, which is mostly at fixed rate. Finally, the attractive terms secured through the partial refinancing of our debt in October 2022. Then the adjusted income tax benefiting from a lower normative tax rate as a result of a reduced corporate income tax rate in France now at 25.8%. On Slide 24, net income was at EUR 151 million with a limited decrease of 10%, despite the one-off negative impact of the deconsolidation of the U.K. for an amount of EUR 105 million. It is a pure noncash gross accounting impact from the deconsolidation. The total negative impact of our U.K. operations and its disposal in our 2022 accounts amounts to EUR 85 million. This is in line with what was announced at completion of the disposal, adding the tax saving, the ForEx gain impact and the positive contribution from the U.K. activities to our net results in '22. The positive cash impact of the disposal is EUR 38.6 million, also in line with what was announced. The increase in the amortization of the allocated goodwill is related to new acquisitions, including Worksphere in 2022. Finally, I would mention the tax adjustment, which obviously is the difference between effective tax rate included in our net income and normative tax retained in our adjusted net income. Our working capital stands at a negative 38 days in 2022 in comparison with a negative 43 days last year. This is an exceptional performance, especially in the context of strong organic growth and tougher negotiation conditions with our clients. In particular, our trade receivables increased by 3 days and advanced payments received decreased by 2 days. We also maintained a very strong discipline on trade payables as well as on our invoicing process. In such a growing activity context, our structurally negative working capital at minus 38 days translates into a net working capital of minus EUR 824 million as at December 31, 2022. This is broadly stable to December end 2021. Overall, the group demonstrated once again the permanent focus on cash management. Slide 26. In 2022, we therefore generated an excellent level of free cash flow at EUR 315 million, up 17%, based on a strong cash conversion of 97%. I would like to highlight the outstanding average cash conversion since our IPO in 2015, which stands at 110%. Our financial net debt stood at EUR 920 million at the end of the year, excluding IFRS 16. As you can see on this slide, our operating cash flow amounted to EUR 489 million, up 19% compared to last year. Cash outflows related to tax and interest amounted to EUR 151 million, other expenses for EUR 24 million, which are composed of cash out related to the financial elements of the pensions for EUR 13 million, bank and insurance guarantee fees for EUR 6 million and restructuring costs for EUR 4 million. Our free cash flow of EUR 315 million allowed us to self-finance our M&A activity, a net of EUR 260 million cash out, of which around EUR 200 million dedicated to the acquisition of Worksphere and as well as our dividend for EUR 106 million. While self-financing our M&A activity, as I just mentioned, we further reduced our leverage ratio at 1.6x EBITA, which is at an all-time low, and this is evidencing once more our efficient cash generative model. At such a level, it gives us full flexibility to pursue our acquisition -- bolt-on acquisition strategy going forward, while maintaining a disciplined financial policy. Slide 29. The recent 2 refinancing we made, one in 2022, the other one early in 2023, allowed the group to maintain a sound financial structure based on a diversified debt profile, long maturities and attractive financing conditions. In October 2022, we completed the refinancing of the EUR 600 million term loan associated with the EUR 600 million undrawn revolving credit facilities, with maturity extended from 2023 to 2027. Early in 2023, we successfully issued 2028 ORNANE of EUR 400 million, as you know, and consequently, early redeemed our bond 2024. Let me also point out our high level of liquidity, reaching EUR 1.8 billion at the end of December 2022 as well as the upgrade by Standard & Poor's of our credit rating to BB+. Finally, the average cost of our debt for 2022 was at 2.36%, thanks to a large portion of debt being at fixed rate. Slide 30. Let me come back on the successful offering of our sustainability-linked ORNANE issued in January 2023. It is our second sustainability-linked financing based on SPIE's 2025 ESG targets. First, it enabled us to early refinanced our EUR 600 million 2024 bond and extend the maturity to 2028. Second, we reduced the group's gross debt by EUR 200 million from EUR 2.1 billion to EUR 1.9 billion in total. Third, the ORNANE carries a very attractive coupon of 2%. It's compared to -- if we compare to [ 3.1% ], 25% of our 2024 bond or to the cost of a straight bond of circa 5% at the time of the transaction, it implies an underlying cash cost saving of circa EUR 10 million per year. Last but not least, the ORNANE structure allows for a very limited potential dilution as the conversion mode in cash or in share is exclusively at SPIE's option. For illustrative purpose, the dilution would be 1.69% only with the principal redeemed in cash, and if at the time of the conversion, the share price of the group is at EUR 42.86. I am -- I will now conclude my part with our recommended dividend. I'm on Slide 31. The Board will propose to the annual general assembly a dividend of EUR 0.73 per share to be paid in cash. This represents a 21.7% increase compared to 2021 dividend at a steady 40% payout ratio of the adjusted net income. An interim dividend of EUR 0.18 was already paid in September 22, and the remaining dividend would be, therefore, EUR 0.55 per share to be paid on May the 24th of this year. As per our policy, an interim dividend will be paid in September -- September 23, amounting to 30% of the approved 2022 dividend. This concludes my part. I will now hand over to Gauthier.

Thank you, Jerome. I will now like to turn to a topic that is at the heart of our strategy, our corporate and social responsibility. We are fully mobilized to deliver on our CSR 2025 road map, and we have defined specific action plans with quantitative yearly targets that are implemented across all our business units. It is important to underline that managers are incentivized on those targets in the variable remuneration as well as the long-term incentive plans. In 2022 we made good progress on our 5 key targets. First, 46% of our revenue is now aligned with the EU taxonomy -- aligned now, which is more stringent and eligible. This compares well with 42% in 2021, and we are well on track to achieve our 50% target in 2025. Then regarding our own carbon footprint as a pure service provider, we have limited our carbon footprint. Scope 1 and 2 emissions represent only 17 grams of CO2 per euro revenue, and this decreased already by 9% since 2019. Our major lever is the renewal of fleet towards electrical vehicles, and we are confident to meet our 2025 target of a 25% direct footprint reduction. On Scope 3 emissions, we are committed that 67% of our suppliers by emissions will have science-based targets by 2025. In 2022, this share was at 29%, already up from 17% in 2021. And finally, regarding people, safety, as you know, has always been, and will remain a priority. We are targeting to have [ severe ] accidents -- Compared to 2019, in 2022 severe accidents were down by 31%, and the absolute accident frequency rate continued to decrease to 8.2%. Regarding gender diversity, we continue to proactively promote both attraction and retention of female talents. We target to increase by 25% the share of women in key management positions, and by the end of 2022, we were already up 14%. So looking at our green share. As you know, we did pioneer the use of the European taxonomy. We've been calculating our taxonomy aligned revenue for 4 years now, with consistent progress starting at 35% in 2019. In 2022, our 46% share of revenue has 3 components, 27% for energy efficiency solution with HVAC and ecosystem in buildings and industry facilities; 17% for the shift in energy mix with the connection of the renewables to the electrical transmission and distribution grid. Since 2022, it also include 1.7% for nuclear activities. And then 2% for clean mobility, primarily charging infrastructure for public transportation and electric vehicles. And then on Slide 35. Being a services company, we aim at valuing our people, a key asset, the first asset for the group. I already mentioned our health and safety performance, our target to foster gender diversity and the fact that our employees are the first shareholders of the group. Recruiting and developing our people in the context of scarcity of workforce is key to further grow our business. In '22, we recruited close to 6,400 people with permanent contracts. In particular, we incentivize our employees to propose new talents for competition, and this has proven very successful. We're also very active to attract young professionals and around 1,100 new apprentices joined SPIE in 2022. And finally, we work a lot to retain our talents. Our voluntary turnover was stable in 2022 at 8%. Our strong ESG focus and our progress towards our objectives are well recognized by external rating agencies, as we show on Slide 36. In 2022, we're rated by CDP for the first year, and we obtain a score of A minus. It corresponds to the leadership level, the highest in the scoring methodology, representing the top 16% companies in this sector. We have a score of 54 at S&P Global, bringing us in the top 6% of the rated companies. Our Sustainalytics rating improved further to 11.7, and we are now among the top 3% of the rated companies. We're also in the top 7% at EcoVadis with a gold rating. And finally, we are rated BBB and MSCI ESG. It is also worth mentioning that in January 2023, we joined the CAC SBT 1.5 degree index, the new climate-focused version of the CAC 40. This new index focuses on robust and ambitious emission reduction targets, in line with the 1.5 degree goal of the Paris agreement. Our inclusion in such index evidence our ambitious climate strategy. And now before I come to our outlook for 2023, let me remind you why it is such a good time to be an electrical engineer. We are ideally positioned to accompany the energy transition and the digital transformation of our economy. With the growing electricity needs, SPIE is more than ever part of the solution. And some figures to highlight how strong the trends are in our business. For the shift in energy mix more than EUR 150 billion investment in energy transmission and storage will be required by 2030 at the European level. In energy efficiency, building renovation is a major challenge with reduction in energy consumption expected up to 60%. In Clean Mobility, EUR 32 million of EV chargers will be needed in Europe by 2030. And in the digital transformation, we should have 40 billion connected devices by 2025, meaning a huge need for 5G connectivity and data center. Now looking at our outlook. As I said, we entered 2023 with a record order backlog and the very strong market fundamentals that I just described. We target for 2023 a mid-single-digit organic growth, a further EBITA margin increase, a high focus on bolt-on M&A, which remains at the core of our business model. We will keep our payout ratio at circa 40% of our adjusted net income attributable to the group. So I thank you for your attention. And now with Jerome, we'll be very pleased to take your questions.

[Operator Instructions] We'll now take our first question from Rory McKenzie at UBS.

Firstly, well, congratulations on the best year for organic growth since, I think, about 2006, so good to deliver that. Can you estimate how much of the growth this year was due to price increases and are pricing still increasing sequentially at the moment or has it stabilized? Secondly, you added head count I think at the fastest rate ever. 6,400 new hires is about a kind of 14% gross addition compared to about 11% run rate pre-2019. Has that been a drag on group margins or productivity? And can you talk about what you're budgeting for next year in terms of head count? And then finally, since we last spoke, the EU laid out it's a green deal industrial plan on the 1st of February. And while I appreciate it's still undergoing lots of discussion, I'm sure you've had a look. So can you share what your thoughts were? And what's the key areas that you as SPIE will be tracking as governments try and translate these plans into reality?

For the first part of your question, as you know, it is very [ useful ] for us to split between volume and price impact when we look at our growth. Obviously, sales were extremely efficient in passing on inflation. There is a higher component of price impact as the year goes, but it would be really hard to quantify it. Regarding inflation, we -- it is somewhat abating in certain areas regarding supply. However, we are facing salary increases and which are usually agreements at national level. It is the case in Germany, in the Netherlands, in Belgium. It is slightly different in France, but salary increases for 2023. EBIT higher than in the past. So it is a further challenge to pass on this cost going forward. But we are not worried. We have, I think, demonstrated sufficiently our ability in this area. And then going forward, we think we see a very good start to the year. The comparables will become tougher as we go. Together, we're very confident regarding the growth guidance that we have given. Regarding head count, obviously, we're talking of a larger perimeter now with Worksphere being there as well. We -- I think it is a reflection of our efforts to match the demand of our customers. And it also is contributing to our organic growth, and there's no way you can grow your business without more people. So our efforts are extremely strong in this area. We are an attractive employer for -- and not the least for the reason of the shareholding plan we proposed, but also the fact that we are part of the solution, and it really gives sense to what we do, and it is a strong feature of attraction for talent to our business. It doesn't have a detrimental effect to the margins, I would say, on the contrary. And because you see it supports our growth. And as you see, our growth is done at a very good margin. And so we do not compromise organic growth -- sorry, margins for organic growth. We have never done that and we'll never do. And -- but it's really good that we're able to find people. And no, we do not budget head count as such. Obviously, it is a function of the demand we have to meet. We try to anticipate but only for so much. But clearly, it's growing head count going forward. Regarding the green deal, I think a lot is already in the minds of our customer, if not in the pipeline of the [ call ] for tender. I think I expect probably seeing the most significant impact towards the industry. We are starting to look at hydrogen project. I think it is something -- it is a very interesting technology for the future. Clearly, various deals in Germany and new laws try to accelerate the shift to renewable energy, and we will benefit from that. But as you know, we have already a very strong backlog in this area. So it just adds to the fundamental, very solid trends of our business.

Just one follow-up on those new hires. Is there any difference in productivity between engineers you hire in [ year 1 ] and once they've been in SPIE for 2 to 3 years? Or because you're hiring qualified people that there's not really that same kind of ramp up in productivity?

No. I think we constantly work on productivity. And in fact, we are helped also by the market situation in our business. People are always worried about what their next job is going to be and the next assignment is going to be. So when there's a lot of work, they tend to work a bit faster to finish the job on the site and move to the next contract. So it helps in a way. We -- people are constantly trained. You see that the technologies evolve fairly fast, and they have to adapt and discover new technologies. So there's always a bit of a ramp-up impact on this side. And we see the fact that we have many apprentices on these young ladies and gentlemen. They take a bit of time to come up with a standard productivity. So it's a continuous cycle in this regard. And I think we have been fairly very successful in 2023 to [ fill ] the demand for our customers.

We'll now take our next question from Oscar Val at JPMorgan.

I have 3 questions. The first one is following up on Rory's question on kind of the employee side. Is it possible to give a bit more color on the magnitude of wage inflation you expect to see in 2023? Is it mid-single digit or is it above that level? Then the second question is on Germany. You talked about some timing delays on some of the transmission work. Do you have a sense of when that will come back? Is that kind of Q1, Q2 or is it kind of H2 next year? And then the final question is around the competitive background. In the market, given there's a lot of growth in these industries, are you seeing any changes in competition for new bids? In particular, one of your competitors, I guess, has merged and is publicly talking about higher margins. Have you seen any change in the competitive background for bids?

So regarding wage inflation, I think a short answer is mid-single digit with a little bit of variation country by country. It will be slightly higher this year in the Netherlands if we look at the current discussion, so 6% to 7%. And it has been very reasonable in France, Germany, around 5%. Again, these are general agreements at the branch or country level or union level. For instance, in Germany it is heavily driven by metal, iron. In the Netherlands there's a branch dealing with a collective labor agreement. So it doesn't create any competitive disadvantage compared to the players in the market. But the challenge is to [ perform ] this inflation, which we have done. And we anticipate in everything we budget and all the tenders we prepare, we will see work with the anticipated rates at the time where the work will be done. And clearly also, we have revisioned price formula, which as you have seen in 2022, do work well. So not a huge worry per se, but something that we have to deal with on a very timely manner as we did last year. Regarding transmission in Germany, I think we are looking at a very active market, and we have -- our orders in hands are huge. And then it is the question of when we can start the work, and there has been some postponement with the planning [ permission ], et cetera. So it is -- I think we should keep a good picture of this business. And we had a very strong growth in 2021, and we achieved roughly the same turnover in 2022. So we're on a high level with a huge order backlog. And so, it will kick in this year and probably the first quarter, the winter hampers a bit production. But as soon as second quarter, I think we will have a strong production and transmission in Germany. And as you know, one of the moves the German government took to tackle the energy issue is to reduce the bureaucracy for planning [ permission ] and try to accelerate the project. A new law has been passed, and it should produce effect. And so very confident on this market. Regarding the competitive background, I think 2 things. First, everyone is busy. So most of the people are reasonable and understand that when you have a lot of work and resources are scarce, it's not the right time to sell them at a cheap price. So we see this more reason in the market. And as you mentioned, the change of strategy at accounts is very clear that they are surprise, and now mentioned that they want to go for margin over volume and monitor the working capital. So these are very good news, and we do hope that it will produce effects on the market rapidly. So as we said in the past, the big ownership will bring a difference in approach, and it has been very clearly stated by council recently.

We will now take our next question from Christophe at Oddo.

I've got 3 questions, please. The first one is on the margin guidance in 2023, so further improvements. U.K. disposal according to me is accretive, let's say, on margin. So would you say as well that excluding the disposal of U.K., the margin will improve? And could you tell us in which area, in which geography the margin improvement will be, let's say, the strongest? The second one is on M&A pipeline. So usually, you say that you buy EUR 250 million of sales. And in 2023, it seems that you want to put the focus on -- let's say, on M&A. Do you have, let's say, a rough envelope of sales that you, let's say, monitor closely for 2023? And the third one is related to the working capital. So it was flat in terms of days -- 22 days, if I remember well in H1. In H2, the pace of organic definitely accelerate. Why should we see a decrease in term of working days in the working capital [indiscernible] there any specific reason?

Yes. Christophe, I didn't understand the very, very first part of your question.

So you say on the guidance for the margin -- operating profit margin in '23, that it will improve. But as far as I remember, the U.K. disposal is actually not margin that we like to see. So excluding U.K., are you going to improve the margin, and in which geography?

I think you have all done the math and faster than me. So the margin -- the 2022 margin, excluding U.K. is in the range of 6.4%. And clearly, when we say we're going to increase further the margin, this is our starting point. So this is what we are going to work out in 2023. Where is it going to come from? I think we -- a part will come from the Netherlands with the total synergies kicking in from the acquisition of Worksphere. I think we will see further progress in France definitely. And there might be a small mix effect with Oil & Gas growing a bit faster than the average. That's what I see for -- clearly, the headwind is to pass on inflation. And so we have to work on that and confident that we'll make it. And that's why we target further margin increase, but it's not -- it doesn't make things easier. So this is my view for 2023. And regarding M&A, we are basically working in all our countries towards M&A. And now that we have done this large acquisition in the Netherlands. And since the integration was done very, very well and very, very quickly. We're also in the Netherlands, again, bandwidth to look for bolt-on acquisitions. So at the moment, we're working in every major country of SPIE on the good M&A pipeline. And I don't think that it should be dissimilar to what we do usually, in my view, also due to -- Worksphere 2022 was a bit on the low-level regarding M&A. And I do hope that we will fare better in '23. And regarding working Capex, I'm sure Jerome will be pleased to answer.

Yes, regarding the working cap, as you rightly pointed out, which we had a slight increase by 5 days from minus 43 days, up to minus 38 days at the end of December. Again, in this context of very strong dynamic and very strong organic growth, also in the context of rising interest rates with definitely much more focus from all our clients across all sectors on cash. Also, in a context where we had to lead negotiation on price increases with our clients, we definitely believe that in the end, this slight increase by 5 days is very minimal. If you also look at the historical pattern -- historical performance at December end, it is a fact that December was slightly better at minus 43 days, but still minus 38 days stays a very good performance. If you look more into detail on how did it translate throughout the various working capital items and constituting the networking cap, as I mentioned, plus 3 days on trade receivables. I think this is very clearly the effect from the growth. I would like to point out that in terms of overdues, we maintained a very good quality within our balance sheet. Overdues even reduced slightly from December 1 -- December '21 to December '22. And we also lost, let's say, 2 days of advanced payments from our customers from [ 19 ] days to 17 days. It's not a drama, but probably reflecting quite well the tougher condition context I mentioned. So from our point of view, the working cap stays and will stay structurally negative going forward in these 5 days difference, in the context of higher growth translated in the end that you have seen into a very stable level of working cap in value, negative 300 -- sorry, negative EUR 824 million in comparison to EUR 834 million last year. I think this is the rationale behind.

A quick follow-up, if I may, on Oil & Gas. The organic growth, obviously, in 2022 was very strong at 12% and the margin was flat, [ 9.5% ]. Is there a reason why the margin is flat? I mean, is it a mix effect, Nuclear versus Oil & Gas or is there other factors that would explain that?

No. I think in both segments, the margins didn't rechange. It's a high level of margins and the Oil & Gas customers are -- have become very tough in the past years, and they have not forgotten their message. So it's not always an easy negotiation with them. And I think we're looking at a good level of margin.

We will take our next question from David Cerdan of Kepler.

I have a few questions for you. The first one is regarding the staff. Do you think that there is a risk of staff constraints for the next years? And what could be the good solution to attract further people within this industry? And my second question is related to -- you have -- your performance in 2022 was good for the top line growth. But do you think that you could give the same kind of organic growth for 2023? Because you say that wages should continue to increase. You expect acceleration in Oil & Gas. So all in all, is it possible for you to repeat your organic performance in 2023?

But we have given the guidance of '23 and so far, I will stick to the guidance. And regarding people, it's -- yes, it is a major challenge to attract people. But we've been faring well enough for -- because we -- for the reasons I described, I think we are an employer of choice in many countries. We are for a good purpose for people to come and work for SPIE being part of the solution. We have deployed many different toolbox. And this year, we shared -- we created this HR toolbox to -- which we shared throughout the group with giving all the good practice, allowing us to attract and retain people. We have also fostered the shareholding plan for the employees. We are working a lot trying to tap different sources and people who come from not exactly the same business, but not too far away, apprentices. We are trying to increase also the attraction for female employees, which are still in a low proportion within SPIE. And it is clearly an effort all across the group to attract and retain people. And so, it is recent thing everybody is working hard at. We've not been unsuccessful this year in the contrary, as you see with the record level of hiring, and we will continue on that path. But clearly, this is a challenge which is on top of our mind. This is also why it is very important that we sell our services at the right price in the context of scarcity of resources. There is no way that we want to sell them cheap and the clear message within the group is margins in this context. There is no reason why the margins not continue to go up, and we have to be extremely demanding on price level.

And just to be clear, do you think that there is a risk for this industry to face some deficit of staff in the future? And as a consequence, do you think that wage inflation should continue to be stronger than the local inflation just because this industry has to attract some new talent?

Well, I don't think the wage inflation so far has been stronger than the local inflation on the contrary. And I think we managed to keep it at a very reasonable level and below inflation. Again, it's a challenge, we will work on it. So far, we have been able to cope and to deliver, and we'll continue to work in this direction.

We'll take our next question from Augustin Cendre at Stifel.

I've got 3, if I may. The first one is on the bolt-ons. I would like to know how the pipeline is evolving for you now and whether you still see some opportunities at interesting valuations? Second question for me is on the Northwestern Europe division. Could you give us a split of the revenue between the U.K., Netherlands and Belgium? How much did the U.K. account for performance? And finally, as a follow-up on the working capital, it has improved a lot since 2019. And I would like to know whether you could share with us a normalized level going forward? Is minus 38 days satisfactory? Or do you see yourself going back to minus 34 pre COVID levels?

Regarding bolt-on, we -- as -- again, as I said, we have a good pipeline. We remain very disciplined on the provisions. So it's -- we have -- I think we have been communicating on our average multiple for a long time now, and you do not see any major deviations. Strong discipline is kept in this regard. And when I look at what's in the pipeline right now, the indicative offers we have made et cetera, there is no difference. And then regarding Northwestern Europe, as Jerome mentioned, the revenue bridge, U.K. was in the range of EUR 250 million. And obviously, we will not give a further split between Netherlands -- and Netherlands is significantly larger than [ December ] Regarding working cap?

Yes. Regarding the working cap, I'm not sure I can fulfill your model so specifically. Just bear in mind that we did minus 43 days last year. And if it has been done in such a way in a very, let's say, straight and comfortable way, meaning no stretch on specific working capital items. It means that this is probably something we can do again. It's not that precise for us, permanent focus on working capital management, especially regarding early invoicing on all our projects and contracts, permanent focus on cash collection, the refore, minimizing overdues as much as we can, very strongly thought and negotiating permanently some satisfying commercial conditions with our clients, including cash advances. This is all what is in our toolbox on a permanent basis. In our opinion, minus 38 days is really good performance again in such a specific context, I stressed earlier, will maintain exactly the same level of focus on the cash management going forward. So I think you have here -- regarding what we've done -- historically, what we've done again in 2022, where is the range of what we could consider as a normalized level.

We'll now take our last question from Eric Lemarie at CIC.

Yes. I got 3 actually. The first one on, regarding your midterm guidance in terms of EBITA margin -- midterm of 6.7% of EBITA margin. I was wondering, in this current environment with a lot of demand, the divestment of the U.K. a good momentum of Oil & Gas, do you think this midterm guidance could be upgraded? Second question on your capital allocation policy. I have seen the dividend and the dividend yield of SPIE is quite good. I think it's around 3%, which is pretty high. But would you ever consider some share buyback? And the last question on Nuclear. You mentioned these difficulties of EDF. Do you see any improvement in 2023 or do you think 2024 is more likely to be the year of improvement of that [indiscernible]?

Well, we have given a midterm guidance, which obviously, we do not revisit on too often. But clearly, we have an ambition for '23, which is a very current with this guidance, and then we'll hit the elephant one bite at a time. Regarding capital allocation policy, obviously, the -- we create the most value by -- when we do good acquisition, as we have evidenced also this year, and this remains the primary focus. As you said, we have a strong dividend policy. And then we'll see as we go on. So for the moment, clearly, a priority for this year is to try good opportunities of acquisition where we can spend our cash in an accretive manner, as you might remember for Investor Day, the ROCE from M&A is above 20%. Regarding nuclear, it's - we -- I think you are right to 2023, we will not show a huge growth in the nuclear activity. They are still dealing with the issue, which has entailed a complete disruption of the maintenance program. So we'll have to deal with that at a good level of activity because there's a lot going on in terms of maintenance or it's a matter of reshuffling the program, but I'm not talking a major variation. One way or the other, by the way, in terms of top line for Nuclear. We are -- the prospects for the future are extremely strong, and we were already working on call for tenders for EPR too. The first tenders already been launched, and we'll be answering them in the weeks to come. So clearly, the midterm trend is extremely strong. We are very well-positioned and we're one of the major player for EDF. So we'll benefit from these trends not in 2023, it's a transition year, but definitely for the future.

Thank you. There are no further questions in queue. I will hand you back to your host to conclude today's conference.

Well, thank you very much to all of you for attending this conference. Thank you for the interest you take in SPIE. We will endeavor to deliver on our guidance once more in 2023. You can rest assure that all the employees of the company are extremely dedicated to delivering and offering the best service to our customers, while keeping clearly a close eye on our CSR targets. Thank you very much. Have a good day.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.