EuroBusinessMedia (EBM): Steria, a leading European IT services company, reports earnings for the full-year 2009, François Enaud welcome. As CEO or Steria, what are your comments on the group’s result and overall performance in 2009?
François Enaud (FE): In a very challenging environment for 2009 and compared to the market, I would qualify our full-year results as good. Plus, on top-line performance, which has decreased by 3%, and on the operating margin, with the contraction only by 40 basis points, these two performances - these two indicators - are better than the average of the market. More interestingly, we are probably the only IT Service company having grown the net result from 2.9% to 3%. And last but not least, we are very satisfied by our cash performance in 2009. Regarding the indebtedness of Steria, we have a strong priority to reduce, year after year, our net debt. Over the last two years we have decreased our net debt by 120 million euros and at the end of 2009 our net debt-on-capital represents only 30%.
EBM: After difficult times in France in 2008 you are apparently experiencing a turnaround there. What are your comments on that?
FE: After a difficult year in 2008, I decided to change management in France to create a new dynamic. And I’m very pleased to feel already tangible results of this change in 2009, with very concrete results and outcomes. First, regarding the top line performance, we are again in line with the market, and even more regarding operating margin, we have increased our profitability by 60 basis points in the second-half, positioning Steria now at the average of the market again in France for profitability. And last but not least, I am very pleased to see how we are starting now to attain, with a good pipe -- higher than last year, one year ago, by 30% in volume and as well, good bookings, meaning that the backlog on entering 2010 is far better than the one we had one year before.
EBM: The group has not been able to grow in the UK in 2009. What’s your analysis of the performance in the UK?
FE: It’s important to remember that the UK economy was not good in 2009 and overall the industry has declined. It’s also important to state that with this -3% revenue evolution for us in the UK, it’s also the result of our agenda, and particularly regarding the integration of what has been the largest acquisition ever made before by Steria. Obviously this integration has consumed some time management and energy to focus on and to deliver the outcomes. That’s why, by the way, Steria in 2009, despite this contraction of revenues, has stated again the highest operating margin in the industry - 11% operating margin in the UK – it’s an outstanding profitability, which is clearly the result of a very successful integration. We are fully in line with the cost synergy plan we announced at the acquisition time and we are now definitely confident in our production model to maintain, in a sustainable way, this level of margin. And now, obviously, our goal is to transform this model into a growth engine.
EBM: Your 2009 performance would seem to indicate tight management, both in terms of costs and cash, but at the same time, you’ve also mentioned that the group has been on the offensive in 2009. So what do you mean exactly?
FE: We mean that for us 2009 has not been only a year for crisis management or cost reduction. It was very important for us to consider this year as a very key year for transformation. Transformation to create growth conditions for the future. As soon as the market recovers, we have to be ready to provide a new model leading this growth. What have we done concretely? First it’s about the industrialisation, which is a very large program concerning all our service lines, such as infrastructure management, application management, testing, where we need to deploy widely, at group level, this industrial model, including offshore, to provide this service in a very competitive way. Secondly, we have invested in developing new solutions - a new portfolio, fitting well with the market demand, and in order to be definitely solution-driven; to push this solution and not just to pull the demand from clients. And last, but not least, we have also applied to ourselves the transformation, meaning that we have also largely reconsidered, redesigned our internal processes in order to gain efficiency and to provide very efficient support to all operational staff in any country where we are.
EBM: How would you rate your ability to preserve margins in this year’s slow growth environment? Are you feeling the first tangible effects yet of the One Steria internal programs?
FE: Yes, first, you are right to mention the fact that 2010 will remain very challenging - as much as 2009 has been. And it’s true to add as well that we are taking on board some declining growth and particularly due to the fact that we had a decline in headcount in 2009 and a decline of our selling price. However, we feel already some good and advanced signs of potential recovery for the second part of the year. All-in-all I do consider that we have still all our capability to rest on margins and this resistance is based on what we do -- on what you call the One Steria programs, which are about deploying our industrial model; it’s about extending the offshore and using our different delivery centres in any project we sell to clients; it’s about the taking the benefit of our unified applications, the transformation of our internal processes to increase the internal efficiency and to decrease our overhead costs. And it’s about real cultural change. If you take, as an example, what happened for cash management, it’s the same for cost management. We have now definitely, through these One Steria programs, a new behaviour of our employees, which is the result of a new awareness of what we need to do to stay very high performing.
EBM: Beyond 2010, what are your medium-term organic growth targets for the group? How - and how soon - do you plan to achieve those targets?
FE: Over the last 10 years, Steria has grown organically by 7%. Despite the fact that in the last two years, due to the crisis or due to the large integration of Xansa we managed, we had a decline in revenue. Definitely my priority is to come back to this historical level of organic growth rate. Meaning, that I would like in the next three to five years to come back to these 5 to 7% organic growth. The driver for that is definitely to use all that we do and to apply all that we do today as a new growth driver. First, the redefinition of our solution portfolio: definitely to make this solution as the growth driver. Innovation – I do consider that the crisis imposed on any contributor to our clients to bring innovative ideas. And that’s why innovation remains a hot topic for us to sustain this growth. And finally, we need also to look at where the growth will be and will come, and particularly to look more and more at Emerging Countries. As an example, India is definitely one of the very promising markets where the growth can come and where we can definitely find the growth we need to come back to our historical rate.
EBM: Since you plan to grow locally in the Indian market, what makes you confident of your success there, given that there are already so many local Indian players, some of them are already selling their services in Europe? So what makes you think that you can be successful in the Indian market locally?
FE: Firstly, the growth of this market is given to be 15% per year for the next five years. Secondly, facing the local competition, we have very good assets. First is our historical presence – we are not new in this country - we know very well the country and we network quite a lot in this country already. Secondly, there is our size – with more than 5000 people, we are clearly well sized to deal with these large programs. And thirdly, it’s about our experience in Europe to manage similar programs with solutions well referenced and already deployed in different countries in Europe, especially in the government field. If you consider the priorities of the Indian government, it’s about homeland security, it’s about citizen services, and it’s about infrastructure development. Definitely we have done already significant, and I would say very convincing, similar operations for European governments which can be easily deployed and proposed in India.
EBM: Last year, your stated ambition was that India should be 40% of your headcount. Is that still your target and what’s your expected timeframe to reach that level, up from about 30% today?
FE: This target of 40% is simply the translation of a reality. This reality is about the evolution of our industry. Our IT industry is becoming more and more industrial and you cannot stay, in the competitive landscape, ahead of the market and client expectations if you don’t have a widely deployed industrial model, which does include not just your local centres, but also what we call the global delivery centres, including near-shore and offshore locations. That’s why, having made the choice of India as the fist place for deploying this industrial model, definitely, naturally, the headcount in India will grow, and will grow faster than the headcount in Europe. That’s why, in our minds, in the next three to five years, we will definitely increase our headcount to reach a total proportion of 40% compared to the 30% today.
EBM: François Enaud, CEO of Steria, thank you very much.
FE: You’re welcome.
