Capgemini Se Ord

Welcome to the Capgemini Full Year 2021 Results Conference Call. I will now hand over to Mr. Eamon Azad. Sir, please go ahead.

Thank you. Hello, and thank you for joining us for this Full Year 2021 Results Call. I have with me Carl Ferrand, our CFO, and Olivier Sevilla, our COO. So I'm pleased to share with you our great results. We started the year confident about the recovery, but after raising twice our outlook and delivering a strong set of results, I can say that we achieved a great performance far beyond the recovery. The group is clearly reaping the benefits of its investment in digital and cloud, its positioning as a strategic partner for its clients, its ability to attract and retain talents, and the successful integration of Altron, having between other things delivered, the targeted synergies ahead of plan. I am proud of what we achieved. We definitely changed gear. And I would like to thank our teams and our leadership across the world for these impressive results. Our revenues reached 18.2 billion euros, up 15.1% at constant currency and 10.2% on an organic base. Strong bookings continue to fuel our top line increasing by 15.8% year on year. and this performance is supported by the strong double-digit growth in digital and cloud, which represents 65% of the overall group activity, including Altron. In 2021, we also exceeded our operating margin target, which is up 100 bps, and generated over €1.8 billion of organic free cash flow. Our earnings per share are up 27%, and based on this performance, the board is proposing a dividend of €2.4 per share, subject to the approval of the annual shareholder meeting. In summary, we have a clear strategy. We are executing well and it's paying off. And with such results, we have a strong start for our 2025 ambition. Now looking at the dynamic across the group, the dynamic is very positive, very visible. We sustain growth across regions, sectors, and businesses. All regions report double-digit growth at constant exchange rates for the full year. with special marks for the UK and Germany who had tremendous growth this year. France reported double-digit growth driven notably by a strong recovery in manufacturing, and France's margin progressed by 150 bps. The strongest fraction is in Asia Pacific and Latin America, fueled by an organic momentum and our recent acquisition. On the sector side, the fraction is strong through Q4, In manufacturing and consumer goods, we see some softness in energy and utilities. Finally, all group businesses grew double-digit with a sustained momentum, as you can see, in strategy and transformation services, supporting the acceleration of the work we do with our clients around digital transformation projects. Notable as well is the strength of our engineering services business, which since the second quarter has been recovering with the support of both the automotive and aerospace sectors. Now, when we look at the deals, Q4 was another strong bookings quarter, with deals highlighting our strategic focus on cloud and data. The large deal activity was sustained throughout the year and with a strong funnel going into 2022, including quite a few of new clients. And these deals position us clearly as a strategic digital transformation partner of our clients. To give you some highlights, we continue to expand our footprint in the intelligence industry with digital, and engineering conversion deals and a strong pipeline in auto, IRO, life sciences, and telco. In enterprise management, deals were driven notably by Cloud ERP and renewed strengths in application development and maintenance deals. We also continue to accelerate the deployment of our sustainability offerings, with deals across many areas, from ESG strategy to carbon footprint lifecycle assessment. We are leveraging our technology know-how to deliver great sustainability outcomes. Sustainability is not only a growth platform, it's also a big accelerator of our attractiveness for talent, and that naturally brings me to my next topic. Talent. So talent growth and development was surely one of the key success factors of 2021. Our results would not have been possible without the dedication of all our talented team members. In 2021, we demonstrated our ability to recruit and to develop our people. We finished the year with 325,000 engaged team members across the world, representing a 20% net increase for the full year, including a net addition of 15,000 people in Q4. And beyond achieving excellence in recruitment, we continue to massively invest in our human capital, with close to 13 million hours delivered in training, up 30% year-on-year, representing an increase in training hours per employee above the 5% per year target we set in our ESG policy. Cloud and data were the clear winners in that equation, notably in terms of upskilling to address the scarcity of resources in the market in these areas. Preparing for the post-pandemic, we pursued the deployment of our new normal model implementing our flex work policy in most of our countries with very positive feedback from our team members. We also enabled an enhanced work environment at home for employees as well as launching the transformation of the work environment and people care processes. I could also mention our constant efforts in terms of diversity with a progression of two points notably on the gender diversity in 2021. Our employee engagement, as you can see, is at an all-time high, measured both internally but also as expressed by external metrics like Glassdoor. The technology labor market is going to remain tight this year. Our position has never been as strong on this front, but talent availability will remain a challenge for everyone in 2022. Now, going to Altron. We successfully completed the operational integration of Altran. I repeat what I said several times. It has been extremely smooth, as demonstrated by the high level of retention of talent, notably among the leadership team, and the strong fraction we have in the market. The Capgemini engineering brand is very visible and acting as a talent magnet in areas such as 5G, software engineering, and digital manufacturing. We are clearly positioned as the leader of intelligence industry with a strong recognition by analysts such as IDC, Everett Group or Zinov. We have built a unique offering and strong position in some sectors such as aerospace, automotive, life science, telco or energy. We are winning many convergent deals. I can take the example of this large global deal with an American equipment manufacturer leveraging engineering, data and application capability resulting in the acquisition of this new client. Our clients will be able to reduce cost and improve time to market by virtually testing product designs and predicting manufacturability, including improvement of quality. As a result, our synergies are delivered earlier than expected, well ahead of the targeted three-year timeline. Custom operating model synergies have reached a run rate of more than 80 million euros at the end of 2021, compared with the target that we set of 70 to 100 million after three years. Similarly, with more than 350 million euros of revenue synergy already reached in 2021, we already achieved the high end of the target range. Thanks to cross-selling and our unique ability to augment engineering expertise with cutting-edge digital capabilities to leverage data. So financial objectives are met and the strategic rationale of the Alpha acquisition is well recognized by the market and our clients. We are now focusing on reaping the benefits of our intelligent industry leadership position. So overall, 2021 is a very strong year in terms of financial performance, but there are also many other dimensions. First, the relationship we built in 2021, whether it is with our clients or with our partners or employees, was central in our success. Client intimacy has never been so strong. We are engaging with them on their transformation journeys and on their key strategic business opportunities. They trust us because we deliver real business outcomes. This combined with our relations with the best technology partners and our talented pool of 325,000 people worldwide enable us to create significant value. Where we stand today is well beyond our expectation for 2021. Everywhere in the world, thanks to our brand promise, get the future you want, our brand image and awareness significantly increased. We are perceived as a strategic partner of our client CXOs and our position as an employer of choice across the globe. Our ESG mobilization is linked to that success. As a team, we are deeply convinced that we have a key role to play in accelerating the transition to a more sustainable world. All in all, it was a fantastic year. Now, having achieved a robust growth in 2021, we see positive demand trends for the coming years. We end 2021 with a Q4 organic growth three points above the full year rate, with an exit book-to-bill of 1.17 and a year-end sales funnel up 22% above what it was at the end of 2020. So we are confident for 2022. The inflection in our growth profile is already visible and we are well on track to achieve our 2025 ambition. This, of course, is a result of two things. On one side, a robust market demand driven by the digital transformation of businesses across sectors and geographies enabled by cloud and data. And on the other side, the strong industry-focused positioning of Capgemini as a strategic partner for the digital transformation of our clients. You're familiar with the strategic framework that we shared with you at the Capital Market Day in March. We see traction across all the areas, but I'd like to highlight some of them. So first, intelligent industry. A lot of traction. We are positioned as the leader, delivering a lot of flagship projects that embody our vision, whether it is on large-scale data transformation, digital continuity, or development of new products and services. The potential is very large, and we are only at the start of the journey. We continue to reinforce our industry-focused skills, which are critical, and deepen technology expertise in areas such as smart manufacturing, intelligent supply chain, connected products, or 5G and edge. On cloud, it remains a strategic priority. It's a technology platform enabling digital transformation. Our strong growth is fueled by the proactive shaping of transformative deals with our clients to offer them the best business value. and we are aligning our capabilities, go to market, and focus investment with each hyperscaler to accelerated cloud-driven innovation and value creation. My third point I'd like to comment is on sustainability. This is the next growth platform. It is a universal challenge that all our clients are facing. Industry by industry, things are accelerating. We have four large offerings to enable our clients to save 10 million tons of CO2 by 2030. And here we are liberating all our skills, in van, data, AI, engineering, whether we talk about green IT, creation of new business model, or product design, or sustainable operations, the opportunity is huge and we are well positioned with a strong offering. We're also accelerating our investment in new areas such as quantum, edge, AI, and the next phase of metaverse, or even in synthetic biology. As you can see, we're quite confident on the outlook for the future, starting with 2022. The group's financial targets for this year are revenue growth of 8% to 10% at constant currency, an operating margin of 12.9% to 13.1%, and an organic free cash flow above $1.7 billion. Acquisitions could contribute 1 to 2 points to growth. Implied organic growth is therefore 7% to 8%, and factors are stronger year-on-year comparison basis that we will see in H2. With this outlook for 2022, we aim for another significant step towards our 2025 ambition. Thank you for your attention, and I now leave the floor to Carol Ferrand, our CFO.

Thank you, Ayman, and good evening, everyone. I am pleased to share with you now the financial highlights of our 2021 results. QM9 delivered a record performance in 2021. Our results surpassed all our targets, which we had raised a second time last October. Group revenues reached €18,160,000,000 for the full year. This represents a reported growth of 14.6%. At constant rate, the growth reached 15.1%, slightly above the upper end of our 14.5% to 15% range announced in October. Our operating margin amounts to 2 billion 340 million euros or 12.9% of revenues. This is also significantly above the minimum targeted rate of 12.7% as raised in October. This is one point higher than in 2020 and 0.6 point above pre-pandemic level which was 12.3% reported in 2019. After the other operating expenses, financial and tax expenses, which I will further comment in a moment, the net profit for 2021 reached 1,157,000,000 euros, up 21% year-on-year. Excluding the Odigo capital gain impact from the 2020 baseline, the net profit would be up by 38%. The normalized EPS, as adjusted for a transitional tax expense, climbed to €9.19 at 27% year-on-year. Finally, we delivered, again, a superior cash flow generation in 2021. Organic free cash flow is close to €1.9 billion, up by more than €700 million on 2020, and largely exceeding our target of 1.3%. 7 billion euros. Our quarterly revenue growth clearly reflects our acceleration over the year. And in Q4 again, the underlying growth accelerated. Organic growth reached 13.2%, the same as Q3, while the comparison basis was more demanding. This brings the full year organic growth to 10.2%. In terms of scope impact, we still had a significant impact of Altron Q1 as the company is considered dated since April 2020. From Q2 onwards, net scope impact turned slightly negative with the disposal of Odigo that took place at the end of 2020. With a total scope impact of 4.9 points for the full year, our growth at constant currency reached 15.1% in 2021. Ethics had a positive impact of 2.5 points in Q4, mainly coming from the US dollar and the British pound. This brings down the negative impact from currency variations over the last 12 months to 0.5 points. As a result, Capgemini's reported growth reached 15% in Q4 and 14.6% for the full year. Ethics are currently a bit volatile, but we are heading toward a positive ethics impact, at least in the short term, with around two points in Q1. For the full year, we might shoot for a positive impact for 0.5 to one point. Let's now look at our revenues by region. From a regional standpoint, our acceleration in Q4 was driven by UK, NA, and France. Speaking of the full year 2021, all group regions posted double-digit growth at constant exchange rates. Revenues in North America increased by 12%. The United Kingdom and Ireland regions had a particularly strong year with revenue growth of 18.3%. France reported growth revenue of 10.3%. The rest of Europe region grew by 17.6%. Finally, revenues in the Asia-Pacific and Latin America regions increased sharply by 27.3%. Organic momentum increased steadily throughout the year and was supplemented by group acquisitions in Asia Pacific. These regional trends were fueled by sector dynamics which are relatively consistent across all our regions. As shown on the revenues by sector slide, our acceleration in 2021 is also visible in almost all our sectors. The manufacturing and GMT sectors benefited from a strong recovery of the demand environment over the past year, adding to the impact of Altran consolidation in Q1. The consumer goods and services sectors also recovered sharply, while the public sector maintained its robust momentum in the wake of 2020. Lastly, financial services enjoyed a solid growth in 2021, Only the energy and utilities sectors reported a muted growth. Considering now our revenues by business line, all group business lines also maintained a solid momentum in Q4 2021. Consequently, they all reported double-digit growth for the full year at constant exchange rates. Strategy and transformation, our consulting services and application and technology services continue to benefit from robust digital and cloud demand. The reported growth of 27% and 13% in 2021, respectively. Operations and engineering's total revenues grew 18.5%, taking into account both the acquisition of Altron and the sale of Odigo. On the life-for-life basis, growth was primarily driven by the strong recovery in engineering services during the year. In addition, both infrastructure and cloud services and business services enjoyed a solid growth in 2021. Moving now to the headcount evolution. Our total headcount reached close to 325,000 employees at the end of 2021. up by 55,000 employees year-on-year, or plus 20.4%. We are accelerating our hiring in response to the strong demand for our services. The offshore leverage climbs to 58%, up by 4 points year-on-year, and above 3 as fund levels, with visible progress in continental Europe, as already highlighted in Q3. Lastly, as expected, attrition remained high in Q4. It now stands at 23.5% on last 12 months basis. After the low point reached in 2020 and given the strong demand environment, this increase was expected as attrition is a byproduct of growth. For your reference, this is one point above 2018 level. Let's turn to the operating margin by regions. North America improved again its operating margin in 2021 to reach 15.9% at 110 basis points year on year. The operating margin in UK and Ireland reached a record level of 18% compared to 15.5% in 2020, benefited in particular from a favorable mixed effect. France also further improved its operating margin by 150 basis points year-on-year to reach 10.2%. This is particularly visible in H2, with a 270 basis points improvement driven primarily by a catch-up of our utilization rates. Lastly, the rest of Europe region delivered also a solid improvement year-on-year by 90 basis points, Our operating margin in Asia-Pacific and Latin America is down to 11.5% from 13% in 2020. However, we are very confident that our margin should rebound. Moving on to the analysis of our operating margin, our gross margin improved by 30 basis points in 2021, mainly driven by the growth in our digital portfolio and higher utilization rates across all regions and business lines. As Eamon told you earlier, we have generated cost synergies with Altron in excess of 18 million euros in run rate at the end of 2021. This has a visible impact across our operating expenses. Additionally, our selling and G&A benefited from some cost avoidance in the context of the pandemic. Overall, the operating margin increased by 100 basis points in 2021 to reach 12.95. which is significantly higher than the minimum rate of 12.7% targeted for 2021. This is also one point higher than 2020 and 0.6 points above our pre-pandemic level. Moving on to the next slide, our financial expenses amounting to 159 million euros in 2021, that is 147 million euros in 2020. This slight increase is mainly due to the full year impact of debt cuts associated with the Alphan acquisition. Our income tax expenses increased from 400 million euros in 2020 to 526 million euros in 2021. The amount includes a transitional impact of tax expenses of 36 million euros as opposed to an income of 8 million euros in 2020 which relates to the transitional impact of the 2020 17 tax reform in the US. Our underlying effective tax rates down at 29.2% compared with 33% in 2020. Now a quick recap of our P&L from the operating margin to the net income. The other operating income and expenses represented a net expense of 501 million euros at 124 million euros year-on-year and This is attributable to the €120 million capital gain realized in 2020 on the divestment of Odigo. Also, the substantial decrease in restructuring costs was more than offset by the impact of Capgemini's share price increase on the long-term share-based compensation. As a consequence, our operating profit for 2021 climbs to €1,839,000,000, or 10.1% of group revenues, up by 22% year-on-year. Our net profit amounts to €1,157,000,000, up 21% compared to 2020. Therefore, our reported EPS, basic EPS, increases to €6.87, up 20% year-on-year, The normalized EPS is up 27% to €9.19, excluding the transitional impact of the 2017 tax reforms in the US. Finally, looking now at the evolution of our organic free cash flow and net debt, our organic free cash flow reached the remarkable level of €1.8 billion. 73 million euros from 2021, well above the 1,700,000,000 euros target for the 2020. This performance reflects both the strong growth in group revenues and the operating margin improvement in 2021, combined with a marked reduction in our working capital requirements. The net cash outflow for acquisitions amounting to 369 million euros, while we returned to shareholders a total of €529 million in dividends and buybacks. On the other hand, our 2021 employee share ownership plan led to a gross share capital increase of €589 million. Overall, our net debt decreased substantially to €3.2 billion at the end of 2021, compared to the €4.9 billion a year before. This means that we managed to reduce our financial leverage well ahead of plan after the acquisition of Alpran.

Thank you, Carol. Operators can open the line for the Q&A.

Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We have one first question from Mr. Adam Wood from Morgan Stanley. Please go ahead.

Hi, good evening, everyone. Thanks for taking the question and congratulations on a very, very strong 2021. I've got two, please. Maybe just first of all, on the margin guidance, obviously looking for a little bit less margin leverage, understandably, this year versus last year. Could you just frame a little bit the kind of gives and takes in there? I guess there's a group of COVID costs that you avoided in 2021 that come back. Could you maybe talk a little bit about the assumptions you're making on wage inflation versus the pricing power that you have? Are you assuming that there's more wage inflation than your ability to pass on pricing. And could you talk about the level of investments that you're making and the offers that you have to drive top time in the future, just to give us a little bit of a feel for what's going into that margin guidance. And then secondly, and, you know, kind of apologies for a more negative question after such a good year, but when we look at, you know, one of your big competitors at Accenture, they're guiding to 14% to 17% organic growth, which is obviously, you know, a fair bit ahead of where you start the year. I appreciate that there's a kind of six-month or so difference between the two companies, But, I mean, is there anything you see in terms of demand or market share that would explain that, or is that just really down to those timing differences in terms of, you know, where you and they are in terms of annual cycles? Thank you.

So, Adam, thank you for the questions. I will take the margin one. So, as you have noted, we have a significant step up this year, a record level and a remarkable achievement, all the more remarkable that we continued to invest. As you mentioned, we have some headwinds in 2022 on our margins. And there's a transition, a transitory headwind with the compensation pressure to meet high demand of talent, of course. There's an inflation on talent for sure. And that takes time to translate it into prices. So 2022 is definitely impacted by that. We have also some costs that were saved in 2020 and that will return at least partially. So that's the case for offices. That's also the case for travel. And we are due also in 2022 to accelerate our investment in innovation. And we've got some tailwind that you also know very well. Primarily, our digital portfolio is accretive to the business. So that's to the benefit of all investments that were made in the past. And we've got some operating leverage as well. So with what we have achieved in 2021 and with 2022 outlook, we have a strong start to meet our 2025 ambition.

Thank you. And Adam, just on the growth. So as you see, the underlying growth rates about 7% to 8% organic, taking into account the fact that there'd be a much stronger base effect in the second half. If you compare 21 growth compared to 2019 to have a more stable basis, you will see a much bigger impact, much bigger growth in the second half than in the first half, which basically, by definition, will have a bigger base effect in the second half. Overall, I consider that our growth rate is good as we start the year based on what perspective we see and what we expect in H2, also taking into account the fact that there's an important factor which is called basically talent shortage in the market that can provide some constraint for the full year. So that's what we take into account as we provide the guidance for the full year. It's still solid because 8% to 10% is above our 7% to 9% basically ambition for the 20 to 25 period. Perfect.

Thank you very much.

Thank you, sir. Next question is from Mr. Charles Brennan from Jefferies. Please go ahead.

Great. Thanks very much. Two questions, if I can. Firstly, just on the margin discussion, given how strong the growth is and your margin performance from 21, I'm surprised to see utilization rates dipping down in Q4. Is that just a function of the accelerated hiring in the quarter or And how should we think about utilization rates panning out in 2022? And then just as a small financial follow-up, some companies are talking about an extra day's trading in the fourth quarter. Is there any day count benefit to your organic growth in Q4? You could call out for us. Thank you.

So on utilization rates, The deep that you'll see in Q4 is primarily linked to basically a much higher level of freshers that we have been taking in because if we want to fuel growth, we have to build our own talent. As such, we have to accept basically to drop a bit utilization rate with absorption of higher percentage of freshers. But of course, that will wane a little bit as we start putting these people to work and depends of course of the intake of freshers we'll have in 2022. So we have to continue to do that. There's not enough current from the market. If you don't build it, you know, it will not exist. So that's really what's driving that. And the other one was on the day count. Yeah, to be frank, I don't, as far as I know, we haven't reported any acceleration coming from the day count in Q4, as far as I know.

Perfect. Hi, good job on the call, sir. Thank you.

Thank you, sir. Next question is from Mr. Amit Archandani from Citi Group. Sir, go ahead.

Thank you. Good evening, all. Amit Archandani from Citi. Please, if I may, my first question goes to the topic of revenue growth in 2022 and how to contextualize it in the context of a 20% growth in headcount. Looking at the growth in headcount, it suggests it is aimed at supporting a stronger revenue growth into 2022. At the same time, you have talked about talent shortage. If you could help us better understand how we should think about your revenue growth in the context of headcount growth in 21 and potentially some thoughts on headcount growth into 2022. My second question, probably more for Carol, would be with respect to the free cash flow guidance. Yet again, probably for the seventh or eighth year in a row, you have blown past your free cash flow guidance in 2021. And the guidance for 2022 potentially suggests maybe some dynamics, maybe working capital moving the other way. Could you help us understand the puts and takes around the free cash flow guidance for 2022, please? And finally, a last question, more broader one. Can you help us understand how you are thinking about driving inflation? and potential impact, not on the supply side, but more on the demand side, as you have the conversations with your customers. Thank you.

So I think the first and the third one, Amit. So first one on the revenue growth. Of course, you know, we have embarked on a lot of talent, and we are growing talent, but that has fueled our growth as well. As you imagine, with such a growth that we have, we basically have a pyramid of getting younger as well. So overall, you know, equation revenue growth versus talent growth is not one-to-one. And you have seen we have increased by four points our offshore leverage. So percentage-wise, it's not going to translate exactly. And the second thing, our utilization is still pretty high. It's only a small dip in Q4. So we are operating at historically high utilization rates still. So it's not like we have a lot of extra capacity on our hand. I wish we'd have that, but today I consider that we have to continue to invest quite a bit in terms of talent actually to be able to fuel the growth. And I consider with what we are growing, with the growth we are planning, we continue to take market share. When I look at the IT services market, full year growth, because as you know, we don't have a lot of data points on full year growth yet. Very few companies have reported on what they expect for the full year. The highest that's seen is Gartner is at 7% in terms of growth for IT services market for 2022 at this stage. So for me, the guidance we have given and the growth we have is quite ambitious based on the market growth and it will deliver market share gain. On the inflation impact of demand side, Frank, the acceleration of growth is fractional. The acceleration of demand is fractional in the market. There might be some small impact on inflation, but today we have a lot of demand in front of us. As we said, the final is up 22% year on year. We have a lot of nice deals already started to book in the beginning of the year. I don't have a lot of concern around demand going into the year right now.

Anit, on your question on organic free cash flow target for 2022, As we have mentioned, 2021 organic free cash flow benefits from a substantial 500 million contribution from working capital improvement, which is by nature not a recurring item. So we will continue to strive to improve our working capital, but of course not necessarily every year and not for the same kind of amount. but you know us we are strongly mobilized and disciplined around cash and we will keep this discipline and commit to an organic free cash flow conversions that continues to be well above net profit if you look at the average 16 to 20 it's above 135% and last year because of this working capital one of impact it's 162% so That's how we have stated our target for 2022. So you have to take into account this one-off contribution from working capital.

Thank you, Emmanuel. Thank you, Carol. Thank you.

Thank you. Our next question is from Mr. Michael Brist from UBS. Please go ahead.

Yes, thanks. Good evening. Two for me as well. Just maybe following on on that. working capital, Carol, the contract liabilities look to have gone up nearly 400 million year and year and a half and a half. I mean, last year it was about 200 million and a half and a half, and that seems to be the long-term trend. Can you explain that maybe in relation to the cash flow and cash flow guidance? And then, Eamon, we don't have an average employee count But my best calculation is that your year-end headcount is about 11% higher than your average. And your revenue per employee dropped about 3% last year, given the ramp-up in offshoring and freshers. So it feels as though the low end of your guidance really anticipates no headcount growth this year. What are you expecting in terms of headcount growth?

So thinking the first question, On the contract liabilities and globally, you have to look at the working capital globally and the strong acceleration of activity notably toward the end of the year and globally in H2 has led to 150 million positive impact on our working capital if you look at the net impact for clients and suppliers. So that's ways in the 500 million euros that... that I mentioned earlier. So you have to take both assets and liabilities to look at our working capital and to look at the net clients to suppliers. The remaining impact is linked to employee payables in terms of evolution of our working capital.

On the headcount, I'm not sure I followed completely all your calculations. I'm sorry. Maybe end of day, but on the headcount growth, I mean, I expect the headcount growth actually to be higher than the top line growth because I do believe that we'll continue to increase our offshore leverage this year. And as such, I'd expect headcount growth to be north of 10% for the full year. And for me, it's a sign of confidence. And we have to continue to build. We are in a multi-year cycle. I mean, we have to understand this is not about just this year. We have a multi-year cycle and I expect shortages in talent to remain. We have to continue to hire and grow talent because there will be a shortage in the market for many years. And if you want to fuel our growth on multi-year, our investment in talent is absolutely critical.

Thank you. Will the hiring be pretty linear, do you think? Or is it simply analysis about hiring from campuses and things?

Right now, when I see the beginning of the year, we still have a pretty good rate.

Okay.

Thank you. Thank you, sir. Next question is for Mr. Stefan Swalinski from . Sir, please go ahead.

Yes. Hi. Good evening, Ayman and Carol, and congrats on a great 2021. Just following up on the top line questions, you know, looking at the headcount of 18% just in the last nine months, expectation for double-digit hiring next year. Maybe another way of coming at it is just on the attrition side. I mean, that's at 23% now on an LTM basis. Do you think that's peaked? How do you see the attrition evolving? And then also, secondly, just around the Alton synergies, you said you have achieved the €350 million. Will that synergy amount increase in 2022 and any indication you can give on the quantity of that?

So, altran synergies and evolution of attrition. On the attrition, the first signs on the beginning of the year is that it's stabilizing compared to Q4. But as I say, I'll remain cautious in terms of basically my perspective on attrition because the demand remains pretty high. And I have to say, having people sitting in front of screens at home has increased basically the fluidity of staff So we have to see as well the impact of attrition as people start returning back to the office, etc. Frankly, it's a bit difficult to predict at this stage. But right now, I would say we have seen some stabilization and we hope that continues. On the synergy side, we are both at 350. I'd like to see it more as we have achieved earlier than planned the synergies. We really have to focus on the intelligence industry. I don't want to spend all of 2022 just looking at cross-selling, trying to tag what was linked to Altron and so on. The operational integration is done. For me, the revenue synergies are there. The best thing to track now is intelligent industry, which is really the convergence of engineering and digital, which is what we did the deal for. So we will definitely report on how we're performing on that convergence and the trends on intelligent industry because that will be you know, for me a key indicator of the future of what we're trying to achieve.

Okay. Thank you very much.

Thank you, sir. Our next question is from Madame Pratinta de Goethe from J.P. Morgan.

Madame, go ahead. Thank you very much for taking my questions and congratulations on the good results. So two for me, please. So in terms of organic revenue growth, how should we think of the phasing into 2022? Of course, Q1 still has relatively easy comps, but then for the remainder of the year, the comps are getting tougher. And secondly, on your leverage ratio, you seem to be a bit ahead of then. Do you have any plans to, for example, increase or do larger M&A transactions or do any share buybacks?

Okay. So organic revenue cross-phasing, yes, definitely we see a stronger Q1, a bit more base effect in Q2 and stronger impact in H2. So if you look from an organic basis, we should see definitely that showing up. through the year, which is from the start of the year, as you said, because the base effect is going to be less than 2.1. On the M&A side, definitely we have more margin of maneuver if you want, but right now we haven't changed. Our focus is on the capital allocation that we see, which is about 50% to M&A. If we find the right targets, of course, the dividend and then the buybacks. That's really our focus for this year. So share buyback should resume definitely this year. I bet we'll continue to be active on the M&A front on the bolt-on to continue to fuel basically the key areas around digital, around smart manufacturing, around 5G, around AI, around cloud, around data. That's really what we're focusing on in terms of M&A. And potentially some additional targets in Asia Pacific to basically continue the trend we have started in terms of reinforcing our business there.

Great, thank you very much. Thank you, Madame. Next question is from Mr. Laurent Dor from Kepler Chevreux. Please go ahead.

Yes, thank you. Good evening. The question I have is first on what you alluded to is the wage inflation and the timing to pass it on to the customer. So if you could remind us maybe of the average contract duration in the group and if we should be worried about any potential phasing between the first and second half in margin development. My second question would be on the engineering business going forward. Do you believe it could be effective both to growth and profitability? And my last question would be more a nice housekeeping question. is on the stock option, if you think you would have to go for a higher number of shares given to the employees going forward, given how hot the market is. Thank you.

So on the wage inflation, listen, we definitely have the timing. As we said, and I said many times last year, we definitely see price increases. So if I'm taking a new contract, based on the tightness of staff in the market, I would have higher prices, you know, If I look at potentially when I'm doing a bit more staffing like in Sogeti, here again I think on arbitrage, I can do a bit more arbitrage. On some of the long-term contracts, it takes a bit more time. As you know, there is no average duration. We have such a mix of business basically in terms of projects, long-term contracts, etc. and things like that. It's difficult really to talk about average. But overall, there is definitely a timing effect between the time where you see your salary inflation and the time you start to pass it to customers. It's a services business, it's not a product business, so it takes a little bit more time. But overall, we definitely see an increase. If not, the margin would be a lot more impacted if we're not able to do that based on the salary inflation that we see. On the engineering, you know, our focus is in the intelligence industry. That will definitely be accretive for sure for the group. I can see the evolution of the engineering portfolio in terms of deals, pre-acquisition and post-acquisition, and two years into, the number of deals of a certain size that are basically being reported by our head of engineering, you know, when, of course, some of it is convergent, has been multiplied by four compared to, if I take the same size deals, we have four times bigger, more deals, than we had 12 months ago. It shows that the average size of this engineering is also going up. I do expect engineering to be, as part of the intelligence industry, to be accretive to the group, both on top line and of course in terms of margin, because of the digital nature of the intelligence industry. On the stock option at this stage, we haven't finalized the resolution, but I do not expect basically to look at higher number of shares. It's the same as last year. You know, I think the stock price went up quite a bit, so I think we're able to reward adequately with this amount of shares our employees and our top management.

Great, thank you.

Thank you, sir. Next question is from Mr. Sven Ness from Barclays. Sir, go ahead.

Yeah, good evening. Thank you for taking my question. First, it's just a follow-up on the earlier question, and... I was wondering if you could remind us what proportion of your contracts are on fixed prices that might be more difficult to direct price in the short term. And then secondly, I was wondering if you could quantify the tailwinds that you're expecting from pricing in 2022 versus kind of pre-pandemic years.

Well, I mean, listen, the fixed price contract, again, is something that's become more difficult to track, really, but we are between 40% and 50%, you know, I would say, of our business's fixed price. contract, but even there, some fixed price contracts have adjustments that are possible in terms of cost of using allowance, etc. It's not because it's fixed price that the price cannot change at all. So that's on the first one. And your second question, I'm sorry, was on the how much price we expect. You know, it's tried by client service by service. It's really impossible to be able to forecast this way. You know, we can in some businesses see a posterior kind of what kind of Charge-out rates we see increase whenever we can do charge-out rates, but it's very difficult. To be frank, what we track is margin, contribution margin on contracts, and the fact that it continues to increase. And as you have seen as part of our results this year, the gross margin is up. You know, you're at a 30 basis point. That's really what we try to track, versus the charge-out rate per person, which is really very focused on staffing business, which we don't have. We have a little bit of that, but not as much as before.

Okay, fair enough. Thank you.

Thank you, sir. Next question is from Mr. Mohamed Mohamad Wallah from Goldman Sachs. Sir, do you have it?

Great. Thank you. Good evening. I had two. The first one was just on the book debate. I know that this has become kind of not fully kind of relevant metric if digital is a lot of kind of shorter duration contracts. This is a bit below the average the last couple of years and people Can you just help us kind of push the gap that was at this time? Did you see more mix for digital? And then the second question was in your kind of revenue outlook, are you assuming any kind of ticket or any signed large deals or expected large deals? Because I know that obviously that was a benefit that you had in FY21. Thank you.

So listen, on the deals and the book, we did that with Olivier, who basically drives all the go-to-market deals.

Yes. Good evening. First of all, I would like to join Ayman in congratulating the Capgemini team for the 21 achievements. We had a book 2 deal of 1.17 in Q4. It's very similar to our best years. If I look at the large deals, 21 has been a great year. compared to 2019, we've sold many more large deals. What you have to be aware of is that we are pretty cautious in the way we book it, because we book strictly the contract, the firm contract value, so our bookings don't always fully reflect the real nature of the backlog we have. On top of that, the large deal machine we have built is really paying off, and on the 20% growth in the pipeline that Ayman was alluding to, there are many more large deals to come. So that's basically where we stand, Mohamed.

Great. Thank you. Thank you.

Thank you, sir. Next question is from Mr. Frédéric Boulan from Bank of America. Sir, go ahead. The next question is for Mr. Frédéric Boulon from Bank of America. Please go ahead.

Hi. Good evening, Eamon. Good evening, Carol. I don't know if you can hear me well. Yeah, so my question is around priorities in terms of segments. If you were prioritizing any specific segment, probably strategy and transformation or the others, and any comments you can share with us on that, growth out-focusing the different segments or profitability, that would be very useful.

Thank you. Listen, I mean, you see the strategy and transformation numbers in Q4, and which are pretty organic, you see the growth remains very, very strong, and I think because of the position we have taken really about on the real transformation, transformational deal. As an example, our engineering team, for example, works a lot with our Inven team on a number of due deals from a strategic perspective. So we have really this InvenTeam which really plays the role we expected and working in a very high level of coordination with the rest of the business line to really help drive some of these large transformation deals, whether they are the customer front end, development of new products, or even significant digital transformation, including with large industrial companies. So I expect that to continue to remain strong and the first indication from the beginning of the year is that the traction remains extremely good. Our application business is strong and it supports digital. You know, the heart of digital is coming from apps. That's why we do a lot of the cloud development, the SaaS, even custom builds. And then our insights and data, which basically drives our data and AI business, The growth is phenomenal. In the second half of the year, we have seen acceleration of up to 30%. The shortage of talent is acute, but we continue to be able to attract a lot of great talent. And engineering is very good, so we'll have a slower growth in our cloud infrastructure service. But our cloud infrastructure service is growing, right? We have seen a number of companies where they're declining. We continue to gain market share and win largely because they're actually transformational deals. bit at a la Bayer smaller than that where we basically help a fundamental transformation of the client environment from a technology platform to cloud and we have a number of these like that where we are very well positioned we want another one at the beginning of the year it basically shows the position there so it is not a double digit growth rate but it's pretty good growth rate with much better margin than in the past and business services is picking up bit by bit You know, we have given it a stronger orientation on areas like customer operation and intelligence supply chain. And we do expect that this investment will provide good growth. So overall, I mean, I always see that the combination of business lines that we have put together is absolutely required to be able to deliver the value we look for our clients and we continue to invest in all of them. Today, you know, the stronger traction that we see is really around strategy and transformation, which is good because that's all the setup of all the large deals in terms of transformation.

Great. Thank you very much.

You know, pretty good confidence overall on the momentum we have in Tenorsim. So thank you very much. It was the last question. Look forward to seeing you, of course, in the coming days and weeks. and of course at the end of Q1 for our Q1 resource. Thank you. Bye-bye. Thank you. Thank you.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.