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.