Capgemini Se Ord

and thank you for standing by. Welcome to the CAP Gemini H1 2023 Results Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ayman Esat, CEO. Sir, please go ahead.

Thank you. Good morning, and thank you for joining us for this H1 results call. I'm joined today by Carol Ferrand, our CFO, and Olivier Sevilla, our COO. So we delivered another solid performance in the first half. The revenue growth was 7.9% and constant currency to reach 11.4 billion euros. The economic environment remains soft as expected and 2023 is shaping up along the gradual deceleration scenario we expected for the year. Q2 with constant currency revenue growth of 5.2% is globally in line with what we expected. Bookings close to 12 billion euros remain healthy with an H1 book-to-bill of 1.05, reflecting a robust commercial momentum. The operating margin at 12.4% is improving by 20 bps. The shift in the project mix towards more innovative and value-creating offers more than offset the higher operating cost base. And net profit up 21% year-on-year, leading to a 15% increase in normalized EPS. And finally, as anticipated, organic free cash flow generation was negative at minus 53 million. Now, these results put us among the leaders in our industry. Our revenue are now 63% higher than in the first half of 2019, and our profit more than doubled. But more importantly, we are today recognized as a business and technology partner for our clients. And thanks to our strategic positioning, we can address the structural demand for digital and sustainable transformation, and gain market share. Now, this first half demonstrates the strength of the positioning and how this is driving our resilience in a market which, as expected, becomes more challenging. To fully appreciate the level of resilience, it's important to keep in mind that 2023 comes after two consecutive years with growth of 18% in the first half. The areas of relative strength and softness in the market are the ones we discussed at the beginning of the year. And from that perspective, Q2 is an extension of Q1. Manufacturing and public sector remain strong with a good traction and double-digit growth in H1. In manufacturing, we clearly benefit from our leadership position in intelligent industry in, for example, aerospace and defense or in automotive. Conversely, on the consumer goods and retail and TMT, we clearly see a slowdown, and as anticipated, the desperation in financial services is becoming more visible in Q2. From a geographic perspective, Europe has shown clear resilience throughout H1. In Q2, momentum remained particularly robust in the United Kingdom and Germany, which were close or above 10% of growth. And the North American market is softer with revenue stable year-on-year in the second quarter. By business, strategy and transformation remains double-digit, which illustrates the relevance of the market positioning we have and also the importance placed by our clients on the most strategic and value-creating projects. Now, H1 is another semester with solid performance for the group, supported by the strong structural demand for digital transformation. We have maintained our investment in our portfolio of offerings and in terms of skills as well to continue to meet our clients' need for ambitious transformations. This is notably the case in generative AI. To fully leverage the demand wave that will be generated by this breakthrough technology, we have announced today an investment of 2 billion euros over the next three years. We witnessed a strong acceleration of client appetite for generative AI Recent reports by our research institute find that expectations are both high in terms of value creation, but also, of course, in terms of efficiency. Capgemini is already a leading player in the artificial intelligence and data market. We have been driving over 20% growth for several years and have built a capability of more than 30,000 data and AI business and technology talent across the group. Generative AI is not new for us. We have been working with clients on Generative AI for the last three years, and we have successfully delivered already many projects, notably in life sciences, in consumer products and retail, or in financial services. For example, the group used transformer models to generate novel medicinal molecules for drug discovery and supported various financial institutions on code conversions for application modernization. We are now ramping up significant investment in Generative AI, And as highlighted during our last earning call, our Gen AI lab is fully set up and working with our clients to explore the now but also future possibilities of Gen AI combined with deep industry expertise. On the portfolio side, it's expanding very quickly. And this morning, we launched four new family of offerings. Our generative AI strategy offering enables CXOs to define and prioritize the most relevant Gen AI use cases for their business. Our Gen AI for customer experience enhances customer experience with full dedicated generative AI assistance. Our Gen AI for software engineering offering helps improve efficiency and quality across the whole software lifecycle. And our custom generative AI for enterprise offering enables enterprise who have sensitive data to have custom generative AI assistance fine-tuned with the key proprietary data in order to get maximum business value impact. And of course, we are building on longstanding partnership to accelerate solutions for our clients. In June, we launched our new global GNI Google Cloud Center of Excellence to develop a library of 500 enterprise-ready industry use cases. And a few days ago, we launched our Azure Intelligent App Factory with Microsoft to maximize AI investments by getting them into production faster. Big investment, of course, is in our people and portfolio of skills. So we intend to double our data and AI teams to 60,000 within the next few years. Leveraging our global data and AI campus, the priority will be to train our data and AI experts on Gen AI, which is in progress, of course, and our software engineers on the Gen AI development tools to ensure that we fully leverage the efficiency benefits that are coming from the technology. The training extends to all businesses where GenAI will drive benefits for our clients, such in BPO or in cloud infrastructure services. But ultimately, we aim to embed AI training as a key requirement into all of our development and training curriculum. Thanks to this significant investment, we are ready to support our clients through the generative AI business journey. Now, the pipeline is already quite strong. We have hundreds of projects, including over 150 in strategy and transformation, reflecting the strong appetite and confidence of our clients for our value propositions. Now, just to take some examples, we are currently delivering a generative AI content generation engine for production to assist marketing teams of a large consumer products group. Another example, we are developing a GenAI engine for medical data understanding search and automated insights for leading pharma companies. We are also working on search engines based on GenAI to increase productivity of customer relationship manager for large retail banks with very tangible outputs. Finally, we also announced this morning that we are working with JISRO Airport to elevate the passenger experience by implementing cutting edge e-commerce and other passenger service solutions through generative AI for customer experience offer. Finally, we are working on a number of general strategy consulting assignments, which we cannot dive into detail. So we confirm all our objectives for 2023. Revenue growth of 4% to 7% at constant currency, a 0 to 20 basis point operating margin improvement, and an organic free cash flow of around $1.8 billion. Let me give you a little bit more color after this first half. So in terms of growth as discussed in the beginning of the year, the range we gave you corresponds to a gradual slowdown through 2023 with, at the top end, a reacceleration in Q4, with the inflection point coming in Q4, and at the bottom end, a material degradation in the second half. We clearly don't see any of these extremes. The US market being a little bit softer than we expected, we now target to be around the midpoint of the range. On the operating margin, following H1, we remain comfortable with our ability to deliver the 0 to 20 bps margin improvement. And finally, on the free cash flow, we continue to target around $1.8 billion, further illustrating our strong free cash flow conversion. Now, this combination of growth and margin expansion in a decelerating market demonstrates once again that our resilience profile has materially improved and put us amongst the top performers. And the underlying market demand in terms of digital transformation remains solid, and we are extremely well positioned, which gives me full confidence on our medium-term targets, both in terms of growth and margin progression. Thank you for your attention. I now leave the floor to Olivier Sevilla, our COO.

Thank you, Ayman. And good morning, everyone. So let's start with our revenues by sectors. Overall, as Ayman said, we start to see more contrasts among our sectors than during the last two years. As highlighted, The line of relative strength and resilience, as well as the sectors experiencing more pronounced slowdown, remained unchanged and further developed in Q2. More specifically, as said, manufacturing and public sector continued to deliver high growth in Q2. Not surprisingly, TechMedia and Telco recorded a slight contraction during the period, while consumer goods and retail and financial services decelerated further. Let's keep in mind that overall, we gained market share in H1 in a tighter market. Looking at our bookings, bookings reached 12 billion euros in H1, which represents a 4% growth at constant currency. This is a strong achievement since we had a very demanding comparison basis with bookings up 22% in H1 last year. Our Q2 sales came with a solid 1.07 book to bill ratio, leading to a 1.05 ratio for H1. This is again a robust performance above our historical average. This is what is very encouraging, frankly, is that our pipeline is up double-digit year-on-year and has reached an all-time high, which is unusual in a deceleration phase of a market. To give you a bit of color, There is a number of sizable transformation deals in intelligent industry, in SAP S4, in data or cloud. We also see vendor consolidation deal opportunities in some industries. On the other side, there is some reduction in smaller discretionary deals, which is not surprising in a deceleration phase. So while the decision cycles remain longer in some industries, we see few of the large deals being dropped, which indicates a strong underlying demand for what we offer. Worth noting, the rate of these shifting to next quarters has also stabilized. As you will now see, we have closed many exciting deals in Q2. Again, we classify our wins against our strategic framework, which proves the relevance of our framework. And I would like to share a couple of remarkable examples of our most recent sales. In the Intelligent Industry category, Capgemini was selected by a large U.S.-based defense manufacturer to modernize how they schedule, plan, acquire material, and produce their incredibly complex products. This will help them to transform deeply the way they do business. For this, we have combined our capabilities in advanced engineering and manufacturing methods, data acquisition, intelligence, connectivity, and IT infrastructure, a quite large example of our breadth of capabilities. Another example in the data and AI space, BMW choose Capgemini to drive its autonomous driving development platform with our partners, AWS and Qualcomm. The validation of autonomous driving algorithms requires data from tens of millions of kilometers traveled. ChemChem and I will build and operate a data-driven development platform using big data and HPC technologies. Such a cloud-based platform will perform the massive parallel processing and simulations needed to address every edge case in autonomous driving. We are pretty proud of that. Thank you. I hand over now to Carol.