Capgemini Se Ord

Ladies and gentlemen, welcome to the Capgemini 2020 H1 Results Conference Call. I now hand over to Mr. Raymond Nezat, CEO.

Sir, please go ahead. Thank you. Good morning, everyone. I am delighted to welcome you to my first results as CEO of Capgemini. I am joined by Rosemary Stark, our Chief Sales Officer, and Carol Ferrand, our CFO. So over the last few years, we shared with you the positive evolution of our business with the confidence that in case of a crisis, we will show resilience. This is exactly what our H1 figures show, increased resilience and agility compared to the financial crisis, and our 2020 outlook further strengthens this point. In H1, our revenues grow by 7.9% in constant currency, supported, of course, by the Altran acquisition starting in April. Our organic growth was a limited decline of 3.4%. Our bookings were strong, notably in Q2, in spite of the lockdown, leading to a book-to-bill for the second quarter of 1.1, which was clearly above expectations, notably thanks to a strong month of June coming out of the lockdown. Digital and cloud, as we expected, resisted well during the pandemic, with a double-digit growth in H1 and especially a Q2 growth of 7%. Now, this is a clear demonstration that digital and cloud is critical to our clients' business and that the investments done in the last few years in the portfolio are paying off. The margins stood at 10.8%. It's another important aspect of our increased resilience with the limited erosion of 0.6 points. This led to a minus 4% in a normalized EPS. Our organic free cash flow remains healthy, taking into account the seasonality of our cash flow generation and in spite of deferred payment requests by a number of clients. All in all, a good H1 in the light of this very severe crisis. Now, I will never say enough that this sudden and abrupt crisis was unprecedented. We reacted in a fast and efficient way, managing priorities around people, clients, and operation, leveraging years of investments. But beyond the initial response, the importance has been our ability to operate in this new environment for months. Health and security for our teams across the world was and will remain our number one priority. Not only were we able to ensure business continuity for our clients without degradation in service levels, we have now proven that we can continue to operate in the new normal mode as long as required. We hire, we onboard people, we train them digitally. We sell, we transition, and deliver in a remote manner. Now, even if our work from home globally remains around 90%, with variations across countries, it's true that the ability to go On client sites, in some cases, have physical meetings when needed is a huge plus. Finally, we took serious cost containment measures, as you have seen, but leveraging what I call smart cost management, which implies that not taking decisions that will damage our future. For example, we maintain promotions and salaries for our people. We increase an accelerated training. We did not cut budget in investment in innovation and offerings. In a word, we are preserving our future. And I cannot thank enough our leadership and all our employees for their dedication, and I'm very proud of what we're achieving on the CSR front to support our communities in this terrible crisis. Now looking a bit more detail at how this resilience materialized, we analyzed the evolution of our organic growth rate between Q1 and Q2. It clearly reflects what we shared with you late April, which means that we had already a pretty good perspective of what's going on. From a sector perspective, manufacturing and services suffered the sharpest decline, led by the industries of aerospace, automotive, and transportation. And we also suffered in some of the consumer business. On the other side, we resisted well, notably in financial services, and even showed an acceleration of growth in the public sector. On the business line front, unsurprisingly, the biggest dips were in strategy and transformation consulting and engineering, which are the most cyclical. On the other side, our operations business, notably business services and cloud infrastructure services, resisted quite well. Finally, on the geographic front, France was by far the most affected, due notably to the unfavorable mix of sectors in line of the pandemic and business lines. combined with a pretty severe lockdown. On the other side, most other regions resisted better, and APAC remained in growth. Capgemini diverse portfolio from a sector business line and geography was a clear plus, and Altran, which as an engineering and R&D business is more cyclical, resisted better than many of its European competitors. Now looking at our constant currency growth, we clearly see the impact of Altran, whose weight is important, in France and North America, but also contribute to the expansion of our footprint in Spain, Italy, and Germany. Now let's talk a bit about the Altron integration. Altron is fully consolidated in our account since April 1st. The Capgemini management processes are being rolled out. All integration planning activities are on track and progressing well. We finished the discovery phase, are finalizing the integrated organization design, which will be aligned with our lead operating model that we launched, as you know, two years ago. It is fully focused on bringing the full value of Capgemini to all clients while accelerating the development and rollout of our innovation offerings. On the commercial front, cross-selling and joint opportunities are increasing every month. we now have over 250 opportunities being pursued, and we already closed more than 20 of them. This great progress in four months in a pandemic and lockdown situation allows me to confirm our target annual run rate of revenue synergies of 200 to 350 million by 2023. The cost and operating model synergies identification and implementation are developing well, we now expect to reach an annual run rate equivalent to two-thirds of the 70 to 100 million range by the middle of 2021. And the development of joint offerings, which will underpin our intelligent industry leadership, are moving ahead and we expect to launch the first set of offerings, notably in areas like 5G and edge, in the coming weeks. Above all, for me, the cultural fit remains excellent and the leadership on both sides is fully engaged in making the integration a success. I remain confident on the value creation potential based on the market opportunity that the intelligent industry offers and the quality of the teams and the progress we are making after only four months. Now, you have seen that I have set a development of a renewed climate ambition as a group priority for 2020, and we announced it in July. carbon neutrality for our operation no later than 2025, and a net zero ambition by 2030. We are building on a successful track record, having delivered already 30% reduction in carbon emissions per employee since 2015. Our new ambition is going to set us on a trajectory to be in line with the requirement of the 1.5 degree science-based target pathway. In addition, We have been developing offerings to help our clients reduce their own carbon footprint and have set ourselves a target to help our clients reduce their carbon footprint by 10 million tons by 2030, which is more than 20% of our own footprint in 2019. Now, of course, looking ahead, it's important to recognize that there are changes in the market. COVID has accelerated demand, evolution, and created some new client expectations. For example, more than ever, there's a continuous and growing demand for digital and cloud. Clients really realize during this crisis how important it is to have made these investments and the need to continue to progress in these areas. Areas like supply chain transformation and cybersecurity have become in high demand. And we see an increasing pipeline of large deals driven by vendor consolidation and cost transformation. Rosemary will detail for you some of our most recent wins and some of the key success factors that enabled us to do that. There are also things that are changing for us. We have become much more proactive, driven by the pandemic, notably in terms of shaping deals with clients and also continue to nurture customers our CXO relationship. We also have leveraged the lockdown to significantly accelerate our reskilling programs, and our handling of the crisis has increased the engagement of our teams and improved our perception in the talent market. We are investing in promising domains and prepared for the bounce back, new best-of-breed offerings in the areas of 5G and intelligent industry, which we expect to launch, as I said, in coming weeks. And we are leveraging our consulting capabilities where we had a bit more capacity in the last few weeks to accelerate our own internal transformation projects and design our future model of work at home and new normal. I am confident that we'll come out stronger from the crisis. Now let me recap some of the key messages. We resisted well to COVID crisis. We proved resilience and agility. The Altron integration is on track and we confirm our synergy target. We have a clear ambition to be the leader in the intelligent industries market. We are accelerating on climate with clear target, both internally and externally, and we use the pandemic as an opportunity to transform some of our operation and fully embed the new normal. I will be providing my priorities and ambition as a CEO during a capital markets day to take place within the next few months. Timing will depend on market condition, but it won't be later than end of the first quarter 2021. Now, based on the improved environment, we are in a position to provide a guidance for the full year. The constant currency top line is expected to increase between 12.5 and 14%, which is equivalent to an organic growth of minus 3 to minus 4%, 4.5% for the full year. So organic growth of minus 3 to minus 4.5% for the full year. The margin contraction will be limited to 60 to 90 basis points. And the organic free cash flow should exceed 900 million euros. The range that I give you on the top line and the margin accounts for the degree of uncertainty that still remains as of today due to the pandemic and potential measures that could be taken by governments to contain it. So it's very important to put these ranges in the context of the uncertainty we still see. I am quite confident about the improved outlook. and expect to enter 2021 stronger than before the crisis. I'll pass it to Rosemary to talk about sales and some of the deals that we have won in the first half.

Thanks, Simon, and good morning to you all. It's a pleasure to be with you. So looking at sales, in H1 2020, we delivered strong sales momentum. We had H1 bookings of 7.8 billion euros, an increase of 10.3% year-on-year at constant currency, and with that, a book-to-bill of 1.03. In Q2, we closed 4.4 billion euros of new sales, an increase of 18.8% year-on-year at constant currency, and our book-to-bill improved in Q2 to 1.1. Sales were fuelled by digital transformation, often to support our clients' new ways of working, and during Q2, we saw many clients stopping or delaying discretionary spend, it definitely affected our project pipeline, but now we see that recovering, and project and discretionary demand is close to its pre-COVID level. As a result, our H2 pipeline is fuelled by both strong funnel of large deals and this improving demand for projects I've just mentioned. We see an increase in the number of deals above 100 million euros in the pipeline, and they're largely driven by our clients' need to accelerate digital transformation. For example, many clients are looking at supply chain transformation. There's a marked increase in the demand for cloud migration. We see our cybersecurity, AI, and analytics pipeline is also strong, and there's definitely an increased demand for vendor consolidation, really driven by cost reduction and simplification requirements of our clients. The pipeline is growing well, particularly in consumer products, in energy and utilities, and in telco. And although the manufacturing sector was clearly affected by COVID, it's now showing signs of recovery too, and we expect that to continue for the rest of the year. While in Q2 we saw some delays in client decision-making, we also see that improving, and we expect decision-making timescales to be back to normal over the remainder of the year. Now, let's cover some of our wins in more detail. As I mentioned, several common themes we've seen driving our Q2 sales digital transformation, supplier consolidation and cost reduction. What's been interesting is with COVID confinement, our Q2 sales cycles have been really different from what we would see normally. And we've had a number of deals that we've been able to solution to win and to deliver entirely remotely, which is quite different for us. In consumer products, for the John Lewis Partnership, one of the UK's most iconic retailers, We've been chosen as their strategic partner for applications development and maintenance through to 2026. This agreement consolidates a range of existing supplier activities that the John Lewis Partnership has, and it moves them into a single strategic relationship. And it will ensure that our John Lewis Partnership can benefit from interesting new operational practices and technologies, and that the applications are supported and running to the agreed performance levels. Moving on to telco, For a leading telco provider of networking and telecoms equipment, Capgemini has been chosen as the partner to transition their Indian R&D Goblin House Centre. And the client's objective for this transition was to gain greater efficiency and productivity, to better align skills with their product strategy, and to be able to take advantage of more flexible staffing, better management of employee attrition. And we've won this three-year deal based on Altron's strong relationship and history of high-quality service delivery for the client, but also because of our ability to offer additional assets and capabilities and, of course, strong product support services. Moving on to financial services, for our global investment banking client who needed a next-generation data solution, we've been working on a new solution that integrates operations and IT-managed services. Bringing different parts of our business together, we've designed our transformative solution. We've reinvented some of the client's business processes and using a very modern data architecture, we have this solution up and running on the cloud. And it's really established some state-of-the-art data platform and processes using intelligent automation and cloud capabilities really at the heart of the solution for this client. I'm moving on to manufacturing now, and I'd like to talk to you about a really interesting example with one of our global power tools manufacturers. And it really illustrates where Capgemini's complementary capabilities with Altron bring together something new for clients. This client wanted to consolidate its vendor base in a context of quite tough cost pressure. They also wanted to create a stronger partnership with a smaller number of tier one providers. And by bringing together Capgemini's long-term knowledge of the client and their IT systems, our engineering services presence in Europe, and now Altron's research and development capabilities, we've been chosen by the client as the preferred partner for their R&D consulting services. It really brings Altron's operation technology skills to the client for the first time. And the agreement covers a range of product and software development, IoT, analytics and testing services. And the client has gone on record as saying they've chosen us specifically because Capgemini obviously has a strong history with them, but now with their expanded value proposition in engineering capabilities, again, our combined global and local presence and the ability to provide this seamless IT and operating technology skills that the addition of Alton to the group allows us to do. In public sector, a key deal is the significant five-year partnership that we've recently signed with the UK's Ministry of Defence, and it's for the provision of the MOD's IT Services Centre. The Services Centre is at the core of the operational service management of which the MOD needs to deliver essential IT services. And through the partnership, we'll be applying Capgemini's leading AI and smart analytics capabilities, the objective being really to increase the digital sales service and to empower MOD's end users. And I think it's great to see so many interesting and diverse sales in Q2 despite the COVID crisis. I'm going to hand over to Carol now to talk you through our financial results. Carol, over to you.