Capgemini Se Ord

Good day and thank you for standing by. Welcome to the Capture Mini Q3 2023 Revenues webcast and conference call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To answer 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 Ezzat, CEO. Sir, please go ahead.

Thank you. Good morning, and thank you for joining us for this Q3 Revenue School. I'm joined today by Carol Ferrand, our CFO, and Olivier Sevilla, our COO. So we delivered another solid performance in the third quarter. At 5.5 billion euros, our revenues growth was 2.3% at custom currency and 2% organically, in line with expectations. The economic environment remains challenging, and this growth is consistent with the gradual deceleration scenario for 2023 that we shared with you at the beginning of the year. Bookings were also solid with a book to build above historical average at 0.96. As a reference, last year it was 0.97. And after taking into account the comparison basis, it translates to a 1.4% year-on-year constant currency growth. But beyond the headline performance that put us among the leaders in our industry, I am particularly pleased with the sustained growth in our innovation portfolio and in our strategy and transformation business. This perfectly illustrates the strength of our strategic positioning. We have become a major business and technology partner to our clients across the entire value chains. We play a significant role from product innovation through supply chain and manufacturing to customer interaction and service operation. We keep on increasing the value we create for our clients, and this helps us navigate in this environment. Now, the appetite for our clients for technology is intact. I would even say with the development of generative AI, it has never been greater, and I will come back to that later. But the demand for digital transformation is robust, with a focus on projects with faster payback in this current environment, and a renewed demand for those boosting operational efficiency and cost reduction. As a result, we have solid demand for our digital core and agile ERP solution, but also intelligent supply chain and manufacturing, and finally, in data and AI across the board. This portfolio of industry-specific innovative offerings is accretive to our margin and contributes to our sustained operating margin improvement. Looking at our sectors, geographies, and business, the trends are fully consistent with the one observed since the start of the year, with the same areas of relative resilience and softness. Regarding sectors, the contrast between the growth in manufacturing and energy sectors and the contraction observed in financial services and TMT continues this quarter, and public sector stands out with double-digit growth in the third quarter. By region, Europe remains more resilient than North America. The gap between the two is the same as in the previous quarter, As Europe benefits from stronger exposure to the most resilient sectors, public manufacturing and energy and utility, whereas on the other side in North America is overweight in financial services and TMT and very underweight in public and healthcare, which has strong traction, including in North America. Finally, all our businesses are still growing. The 5.1% growth in strategy and transformation service stands out and illustrates the group's strategic positioning with its clients. Now, if you look at the business portfolio in terms of the deals for the third quarter, in a macroeconomic environment that remains challenging, we are well positioned on the strategic needs of our clients. And Q3 was, again, a good quota for emblematic wins that gives us a concrete illustration of the strategic journey and how we deliver strong business value to our clients. So I'll take three examples to illustrate that. On the intelligence industry side, we have been retained by U.S. Gigafactory firm to support the setup and scale-up of their production. We are helping them optimize their supply chain while implementing S4 and an LMS system. On the sustainability side, we are also supporting them around waste management and recycling. Another example on enterprise management, Restore Group, Asia Pacific leading integrated logistics service provider, it has chosen Capgemini to be the integrated end-to-end IT services partner. We are leveraging all Capgemini capabilities from consulting to engineering to support their growth. Finally, on sustainability, Capgemini is helping L'Oréal monitor and steer carbon emissions across their full value chain globally. We are designing and rolling out a solution to consolidate, analyze, and report the entire L'Oréal carbon footprint at product reference level. It is delivered jointly with our partner, SWEEP, who provide a state-of-the-art SAS carbon accounting platform. The platform also supports regulatory ESG reporting to steer carbon impact of all the sustainable transformation projects. Now, coming to AI, the client appetite for technology, I consider it even greater today with generative AI and the proliferation of its use cases. Demand in this field of technology investment accelerated in the third quarter. First, we are ready to respond to our client's demand. We already announced to you our €2 billion investment plan. We have built a capability of more than 30,000 people in data and AI, business and technology talents, as we previously announced. And we continue to broaden our talent base. As a reminder, we intend to double that team to 60,000 people in the next few years. We continue to invest in building and upskilling our people. So our campus to scale up training on Gen AI is now fully in operation for all our employees. And more specifically, we aim to train over 100,000 talent in GNI-specific tools in the coming 12 months. And also following the successful launch of our four offerings, which I remind you are GNI Strategy, GNI for Customer Experience, GNI for Software Engineering, and Custom GNI for Enterprise, we'll be launching new offerings in the coming weeks, including our Capgemini GNI platform. Finally, we're creating more value for our clients thanks to our partnerships. So besides Microsoft and Google, we are also partnering with Salesforce to help our clients accelerate the implementation of generative AI for CRM at scale. We are delivering hyper-personalized data-driven customer experiences by automatic customized content creation in a secure, ethical, and responsible manner. We also recognize as a strategic partner by our clients able to generate value with GenAI. We are engaging with hundreds of clients on GenAI and our pipeline keeps growing. With few exception, these remain small projects for the time being, but we started to see some larger ones. The business outcomes are visible for our client. So I'll take three examples to really showcase that. First, we are supporting major global banks, mobile payment service platform to improve the productivity of their deployment team This is driven through a series of priority use cases, through experimentation, control proof of concepts, and benchmarking aimed at improved benefits realization and reduced time to market for newer development. For Alstom, we have launched a generative AI platform and prompt academy to further and seamlessly deploy GenAI across the organization to boost performance, starting with identifying the most valuable use cases and the most appropriate large language models for each use case. Finally, we are working with Generalitat de Catalunya to develop a generative AI-based chat answer system. The aim is to reduce response time for citizens and improve public services by providing the administration with the agility, innovation, and technological solution needed to focus on people's needs. So coming to the outlook. So after this solid third quarter, we confirmed 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 around 1.8 billion euros. Now, as we get closer to the end of the year, I'll give you a little bit more color. We expect constant currency growth between minus 1.5 and plus 0.5 in Q4 as we see clients tightening spend for their 2023 budget lending. The scope impact should also be around 0.5% in Q4 and full year. Now, in terms of operating margin for the full year, we continue to tighten up our operation and increase efficiency while improving our mix towards more innovation in our portfolio. As a result, we now target 13.2%, so the top end of the operating margin range for 2023. Finally, on free cash flow, in a liquidity environment that remains tight, we continue to target around 1.8 billion euros. I consider this combination of growth, margin, and cash conversion reflects the strength of our market positioning and the value we create for our clients and demonstrate that we continue to deliver on our medium-term ambitions. Carol?

Thank you, Eman, and good morning, everyone. Let's start with our quarterly revenues growth. Like the IT services industry as a whole, we are experiencing a gradual slowdown since the beginning of the year, which continued in Q3 as anticipated. In this deceleration context, with a 2% organic growth, we deliver a solid performance. Taking into account the scope impact of 0.3 points, our constant currency growth reached 2.3% in Q3. Ethics remain a visible headwind this quarter with a negative impact of 3.6%. As a consequence, our reported growth for Q3 is slightly negative at minus 1.3%. For the full year 2023, M&A contribution to growth should be close to 0.5 points, while ethics should represent a headwind of close to two points. Moving on to our revenues by regions. In terms of growth rates, we continue to have the same contrast in between regions. The most resilient regions and the ones more affected by the gradual slowdown remain the same since the beginning of the year. Looking at Q3 growth rates at constant currency, the UK and Ireland region continued its solid growing at plus 5%. This performance was primarily driven by the strong growth in the public sector and the consumer goods and retail sector, while the financial services and TMT sectors were down. The rest of Europe regions also performed well, with growth of plus 5.4%, primarily fueled by the public sector and the manufacturing, energy, and utilities sectors. France revenues were up by 3.7%, The momentum recorded in the public sector and the solid performance delivered in the consumer goods and retail and manufacturing sectors contrasted with the decline in TMT. Revenues in the North America region were down by 4%. Manufacturing sector growth remained solid during the quarter, whereas TMT sector further contracted and financial services growth turned negative. Lastly, the Asia-Pacific and Latin America region boosted its growth with a 7.6% increase in revenues. This improvement was primarily driven by the Asia-Pacific regions with solid growth in the public sector and consumer goods and retail and manufacturing sectors. Turning now to revenues by sectors. Here again, the contrast between our key sectors' growth rates at constant currency remains broadly in line with what we had experienced in the previous quarters. As already highlighted by Ayman, the public sector continued to deliver a high growth in Q3 at plus 14%. Manufacturing and energy and utility sectors also grew nicely during the past quarter, plus 4.3 and plus 3.4, respectively. Conversely, as anticipated, TMT recorded a further contraction of minus 6.7% and financial services eventually turned negative at minus 3.4%. Moving on to our revenues by business lines. Strategy and transformation services maintained robust growth with plus 5.1% increase in total revenues at constant exchange rates compared to Q3 2022. This is a strong achievement as small discretionary deals are clearly under pressure in the current environment. Application and technology services, which account for 63% of group revenues and stand as Capgemini core business, reported growth in total revenues of 2.8% at constant exchange rates. Finally, operations and engineering total revenue grew by plus 4.9% at constant currency, all businesses reporting positive growth. Let's have a look now at the bookings evolution. Bookings amounted to 5.3 billion euros in Q3 at 1.4% at constant currency. The book-to-bill for Q3 stands at a solid 0.96, four points above our 10-year average. On a year-to-date basis, our bookings amounts to 17.2 billion euros at 3% year-on-year at constant currency on a demanding comparison basis. Finally, a few comments on the headcount evolution. Our total headcount stands at 342,700 employees, as at the end of Q3, slightly down by 4% year-on-year. Our onshore workforce is virtually stable, while offshore resources are down 7% to 196,000 employees, or 57% of our total headcount. As discussed with you on many occasions in the past quarters, After two years of intensive hiring and high attrition, our priority for 2023 was to regain efficiencies and optimize our talent base, especially in offshore locations. Finally, as anticipated, attrition has continued to cool down at 18.6% on the last 12 months basis. Attrition is now within our nominal operating ranges. With that, I hand over to Ayman.