Capgemini Se Ord

Good day and thank you for standing by. Welcome to the Capgemini Q1 2024 Revenues webcast and conference call. At this time, all participants are in the 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 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 Ezzat, CEO. Sir, please go ahead.

Thank you. Good morning, and thank you for joining us for this Q1 revenue call. So I am joined today by Nivi Bagat, our CFO, and Olivier Silja, our COO. So the first quarter came in line with our expectation. We continue to see Q1 as a low point for growth this year. At 5.5 billion euros, our Q1 revenues is consistent with traditional seasonality and brings the year-on-year revenue growth to minus 3.3% at constant currency. As anticipated, the market remains soft but stable in the first quarter. Bookings total 5.65 billion euros, so leading to a healthy book to build for Q1 of 1.02. If I look now perspective by geography, sector, and business, from a geographic perspective, Europe continues to demonstrate more resilience, recording a slight drop in growth as expected with minus 3.2%, for example, in the UK, and Ireland minus 2.8% in France, and almost stable in the rest of Europe. In North America, we continue to be penalized by the less favorable mix, but we have stabilized and the signs of recovery are there as we look at Q2. Regarding sectors, as in recent months, TMT and financial services are still suffering from constrained spend, while energy and utilities and public sector remain more dynamic with 2.5% and 2.4% growth, respectively. Finally, on businesses, I'm particularly pleased with the performance that we have in strategy and transformation, which clearly outperformed the market. Again, this continues to reflect our continuous involvement in client strategic digital transformation initiatives, including the strong push on AI and Gen AI. And that also perfectly illustrates the strengths of our strategic positioning. Looking at some of the deeds we have with clients, the demand for large-scale digital transformation projects remains strong. In a macro environment which remains soft, clients are still prioritizing operational agility and cost-efficiency programs with fast payback. as well as digital and sustainable transformational needs at the expense of non-strategic and discretionary spend. We are perfectly positioned to meet this demand thanks to our high value added service offerings, most notably in the intelligent industry, cloud, data, and artificial intelligence. So let me put that in context by taking a couple of examples. On intelligence industry, we are leveraging our end-to-end model from consulting to engineering including insight and data, to support the digital journey of a U.S. manufacturing company. We implemented a scalable solution set of IoT technologies to provide real-time operational data to engineers, operators, maintenance team, and leadership, enabling data-driven decision and analysis. We're also working with L'Oreal in shifting to a global delivery model to enhance IT operations, supporting both sales and marketing, and accelerate growth. focusing on fast and flawless deliveries. To lead to fast productivity gains, GNI is leveraged on top of Salesforce marketing and Commerce Cloud application. Generative AI will be used as a productivity lever for optimization and performance, advanced support assistance for complex issues, and automating tasks to streamline the software development lifecycle. We see sustained investment in growth area from our side. We indicated during our annual results in February that Q1 would be the trough. I confirm it is behind us. The final growth has been strong, and the number of large deals increased, and we see more optimism in the U.S. market. As a business and technology transformation partner of CXOs, we are well positioned to cast the demand for large-scale digital transformation projects. We continue to invest in our people, in our portfolio of skills and offers, while strengthening and expanding our technology partnerships and our focus industry skills. If you look at the underlying trend that we observe in the market, we see traction in intelligent industry and the beginning of rebounding customer first. More and more clients are looking for complete solutions and not just technology. Thanks to our end-to-end model, our industry expertise, and our strong ecosystem of partners, we are well positioned to catch this demanded scale. Clients are also increasingly relying on technology to progress on sustainability. We are supporting them in their journey towards net zero emissions, assisting in designing products that are more sustainable, helping in the implementation of more environmentally friendly supply chains, scaling energy transition in gigafactories and renewables, And we are also enabling the acceleration of the journey towards a more digital and sustainable economy. On cloud technology, which underpins the digital transformation, we combine end-to-end cloud services with industry-specific expertise from technology partnership to help our clients in their cloud transformation journey. On artificial intelligence, continues to be, of course, as you imagine, major subject of interest and fuels a lot of discussion with our clients. In terms of generative AI, we keep investing in solutions. We launched a new platform a few weeks ago to allow our clients to experiment with industry-specific use cases and to industrialize them at a controlled cost. We also continue to strengthen our skills in terms of capabilities around generative AI, leveraging our dedicated campus, and expand our portfolio of offers to create the maximum impact for customers. Appetite for digital core. notably underpinned by ARPs and SAP. Transformation is definitely there, and we see more structural business cost take-out initiative and strong demand for transformation. So at the end of this first quarter, I would like to confirm the growth trough is now behind us. We expect the market to gradually pick up toward an attractive exit rate in Q4, ranging from mid-single-digit to high-single-digit at cost and currency. setting up for a more tangible acceleration in 2025. And in this context, we confirm all our objectives for 2024, revenue growth of 0% to 3% at constant currency, with up to one point of scope impact at the top end, an operating margin of 13.3% to 13.6%, and an organic free cash flow of around $1.9 billion. Thank you for your attention, and I now leave the floor to Nili Bagat, our CFO.

Thank you, Ayman, and good morning, everyone. I'm pleased to share with you our Q1 2024 performance. Q1 revenues slowed down in line with our expectations. We confirm this was the growth trough, and we expect a gradual improvement from here. Group revenues amounted to 5,527 million euros, down minus 3.5% year on year on a reported basis. With a negative currency impact of 20 basis points, our growth at constant currency was minus 3.3%. Excluding a positive scope impact of 30 basis points, organic growth was therefore minus 3.6% in Q1. The FX should have a slightly positive impact of around 20 to 30 basis points in Q2 and likely to be the same for the full year. Q1 performance by region also came in line with our expectations. At constant currency, revenues in North America region declined by minus 7.1% year on year, a rate similar to Q4 2023. The financial services and TMT sectors contributed the most to this decline, partly offset by growth in the manufacturing sector. Revenues in the United Kingdom and Ireland region were down minus 3.2%, also mostly driven by the financial services and TMT sectors. Conversely, The services and energy and utility sectors enjoyed solid momentum, as did the manufacturing sector to a lesser extent. Revenues in France declined by minus 2.8%, with some softness in the manufacturing and financial services sectors and a dynamic public sector. Revenues in the rest of Europe region were almost stable at minus 0.5%. the underlying performance by sector showed more contrast with good momentum in the energy and utilities and public sectors and a visible contraction of the TMT sector. Finally, revenues in the Asia Pacific and Latin America region were down minus 1.7%, almost entirely driven by the financial services and TMT sectors, while the consumer goods and retail sector proved quite dynamic. Moving on to revenues by sector as constant currency. While all verticals decelerated in Q1 as anticipated, we see a persisting contrast in our performance across our sectors. The energy and utilities and public sectors enjoyed a good start to the year with a growth of plus 2.5% and plus 2.4% respectively. Conversely, TMT and financial services sectors are still lagging behind with a negative growth of minus 11.1% and minus 7.3%. However, to note, this does not change the sector's respective weight in our well-diversified mix. Moving on to revenues by business line at constant currency. Total revenues of strategy and transformation services are up plus 1.6% year-on-year at constant exchange rates. This growth reflects client focus on strategic initiatives to transform, optimize, and adapt their business and operations to a challenging economic environment as well as investment in Genia. Total revenues of applications and technology services, Capgemini's core business declined by minus 4%. Lastly, operations and engineering total revenues contracted by minus 3%. Moving on to our bookings. Bookings amounted to 5,655 million euros in Q1, down minus 3.5% at constant currency. However, The book-to-bill ratio stands at 1.02, which is the second highest over the last 10 years. In a challenging environment, this demonstrates that our offerings portfolio is aligned with client priorities. Finally, a few words on the headcount evolution. Total headcount stands at 337,200 employees at the end of March, down by 6% year-on-year. This is marginally lower than at the end of 2023 as we remain focused on improving resource productivity and utilization. The offshore leverage stands at 57%, one point lower than in Q1 2023 and stable since the end of last year. Lastly, attrition decelerated further over the past months. This brings the last 12-month attrition rate to 15.9%, at the end of Q1, down by almost seven points compared to a year ago and fell in our optimal operating range. With this, I hand back to Ayman to open the Q&A session.