Capgemini Se Ord

Good morning and thank you all for joining us for the H1 2024 results call. And today I'll be joined by our CFO Nivi Bagat and our COO Olivier Sevilla. So as anticipated, the demand environment began to show some signs of improvement in Q2, most notably in North America. Globally, clients continue to prioritize efficiency through cost transformation programs. And the demand for discretionary deals remained relatively tamed. Revenues in H1 stand at 11,138,000,000 euros, so down 2.6% at constant exchange rate. And as previously stated, Q1 proved to be the trough and revenue growth rate improved in Q2, coming at minus 1.9% at constant exchange rate versus minus 3.3% in Q1. Bookings totaled 11,793 million euros in H1, leading to a book-to-bill ratio of 1.06 for the period. The booking trend also improved in Q2. The book-to-bill in Q2 was 1.09, which is above historical average and reflects that there is still ongoing robust commercial momentum. The H1 operating margin is stable at 12.4% year-on-year. And the continued shift in the Capgemini's mix of offering towards more innovative and value-added services is leading to an increase in our gross margin, illustrating the strength of our positioning. Organic free cash flow generation also improved. It amounted to 163 million euros in H1, up to 116 million euros year-on-year. And finally, the normalized EPS is up by 1% year-on-year to 5.88 euros. So overall, in an environment that remains soft throughout the half year, as anticipated, the group demonstrated the resilience of its operating performance. Now looking at Q2, our growth is trending in the right direction in almost all businesses, sectors, and regions. Just looking a bit in more detail, from a geographic perspective, the recovery is particularly visible. in North America with a revenue contraction limited to minus 3.7% in Q2, comparing this to minus 7.1% posted in Q1. With growth rate either stabilizing or improving, Europe continues to demonstrate more resilience with minus 2.5% in the UK and Ireland and minus 2.7% in France and a slight growth at 0.4% in the rest of Europe. Improvement is also visible in six of our seven sectors. Olivier will further comment on this. And finally, all our businesses also posted better growth rates in Q2. Our 3.7% growth in our consulting business. Strategy and transformation stands out. It reflects the client demand for strategic consulting on their transition towards a digital and sustainable model. and supplemented also by the growing interest in exploring the broad GNI opportunity. And our positioning with clients and their business and technology partner is more strategic and comprehensive than ever. So let's jump now and address the update to the outlook. So we are on the recovery path, but the slope is slower than what we expected, and this is leading us to revise our growth outlook for the full year. First, we do not count on any return in discretionary spend at all this year. And recent developments are impacting our two largest sectors. First, within manufacturing, the aerospace has abruptly turned from an investing to a tightening phase, driven notably by many supply chain issues. And the anticipated slowdown in the auto sector is becoming more abrupt and happening faster than we anticipated. Second, the recovery in financial services is there, but it's at a slower pace than initially anticipated at some of our largest clients. In this context, we now aim for a low single-digit constant currency exit rate and target a constant currency growth of minus 0.5% to minus 1.5% for the full year as compared to 0% to 3% initially. To note is that the M&A impact should be around half a point compared to up to one point on the higher end of the previous guidance. This revised guidance factors as well for a potential slowdown in France. Despite this, we confirm our operating margin and free cash flow target for the year, which confirm again the group resilience. We have increased our investment in go-to-market. Our sales funnel is solid. and all our group resources are fully mobilized around growth, and we are positioned to capture the upturn as the demand environment improves. Now, this is the case, for example, in generative AI, where we are recognized for our leadership and the quality of our services. Generative AI is still driving many client discussions, and we engage in larger programs to deploy use cases at scale, notably through generative AI factories. We are currently working around on 350 ongoing projects, having already delivered hundreds since last year, and we have approximately 2,000 deals in the pipeline. But let me highlight a few examples. For Unilever Food Solutions, we are customizing and deploying a mobile GenAI sales conversational AI assistant to help them catering customers identify and buy the best products in line with their recipes and budget, as well as a GENE-AI assistant for sales rep on the field to better position and propose the available portfolio of products. With those customers GENE-AI assistant, Unilever Food Solutions aim at improving customer retention, expanding their current 3 million customer base in 72 markets. For a global aerospace and defense player, we are setting up a GENE-AI factory. During the first phase, we are structuring the AI factories, and prioritizing use cases, deploying the teams and operating model, upgrading the customer's AI technology stack and platforms, and developing MVP to validate some concepts. The second phase is about the development and deployment at scale of AI and AI use cases in defense and aerospace programs. And also for European ministry, we are defining, developing and deploying AI, GenAI use cases for predictive maintenance and infrastructure optimization across defense assets. For example, the deployment of AI and GenAI use cases enables the extension of the lifespan of assets, optimize the energy consumption, as well as reduce the waste in the supply chain through optimized availability of spare parts. We are well positioned to address the demand for GenAI We have scaled our capabilities. We have now trained more than 120,000 employees on GenAI tools. We have expanded our ecosystem of technology partners further to the Microsoft, Google, AWS, Salesforce, and Mistral. We have just announced a new partnership with SAP. We are expanding our portfolio of offering to deploy use cases at scale, and we will strengthen our intelligent industry play with three new offers coming in the coming weeks. Of course, it's not all about GNI. So further to GNI, we continue to invest in building the capabilities and solution to help our clients transition to digital and sustainable economy. And we are ready, of course, to catch up the market upturn that will continue throughout the second half. Let me highlight a few items on the trends we see on the market. We are seeing a momentum in intelligent industry with clients looking for end-to-end solution. Demand is mainly driven by reconfiguration of supply chains. To make them more resilient and agile, we also have several engagements around industrial ramp-ups to help factories deliver products with a fast-growing demand. And we are ready to assist our clients thanks to our end-to-end model and our industry expertise. As stated, AI and GenAI are a major subject of interest for our clients. Data and cloud are also fueling the transformation, of course. And thanks to our strong partnerships with the world leaders, we have what it takes and are well positioned to help our clients in their journey. Demand for digital calls remain sustained, aligned with the willingness of clients to transform thanks to agile ARPs. And finally, on sustainability, from net zero strategy to re-engineering for sustainable operation and energy transition, we are supporting our clients in their trajectory towards a more digital and sustainable economy thanks to our end-to-end model. In all these areas, we are well positioned Recognized by the market, Capgemini is positioned as a leader in 60 global analyst reports in H124, covering all services of our end-to-end model. Our ecosystem of partners trusts us. We have not only received from them more than 20 global and regional partner awards over H1, but we're also embedding their technology as part of our industry-led solution, which has augmented, of course, relevance to our clients. and the importance of having a healthy ecosystem of industrial partners to create value together. Let me hand over to Olivier to discuss some of the market dynamics.

Thank you Ayman and good morning everyone. Looking now at our revenues by sector at constant currency, our revenue growth rate, as Ayman said, improved in almost all our sectors in Q2 compared to Q1. Ayman already commented on financial services and manufacturing. I will expand a bit on the other sectors. The public sector proved rather dynamic in Q2, accelerating a bit on Q1. The tech and telco sector improved the most during the past quarter, although remaining still negative, a big improvement sequentially. Consumer goods and retail is slightly improving, Not yet back to positive territory though. And lastly, revenue growth in the energy and utility sector remain in the positive territory. Moving on to the bookings evolution. So Q2 bookings are stable year-over-year. The book-to-bidder ratio reached 1.09 in Q2, which is above our historical average for our second quarter and in particular above last year. A few comments on our sales pipeline evolution and composition. First of all, I would like to insist that we see still very solid tailwinds. Demand remains very dynamic for most of our focused value offers. Intelligent industry and really bad supply chain. It's very hot. Data and AI, including general, of course, cloud, digital core, and sustainability services. are in high demand in this market. Our pipeline of large-cost take-out transformation is very high and healthy. We are, of course, focused there on time to convert. Let's recognize we also have headwinds. Discussionary spend is still under pressure. And as Ayman said, we have a couple of our industry segments of strength that face temporary challenges. Overall, we clearly see in our discussions with business CXOs and full Australian transformation business growth that more clients are progressively shifting from casketing to business transformation enabled by digital. These are, those are actively planning as we speak to invest in our future competitiveness and our position puts us at the heart of those discussions and preparation activities. Then let me highlight a couple of attractivities. We have one in Q2. First, we are very proud to have been selected by Michelin as the strategic global partner for their IT-driven business transformation moving forward. This new multi-year major agreement with Michelin takes root in our historical successful joint ERP transformation program. which will now expand into the domains of R&D, manufacturing, supply chain, and customer experience in North America and APAC, leveraging our intelligent industry for automotive expertise. Capgemini will offer a global delivery model, which will be business outcomes driven and tightly coupled with Michelin's teams across Europe, North America, India, and APAC. As part of our partnership, GSM&I will also provide a new academy for innovation, consulting, and GNI services. The second case, which we are really proud of, the second client is one of the largest multi-brand restaurant retail companies in the U.S. with over $25 billion of global system sales to help enable their objectives of continuous restaurant innovation, distinct brand positioning, and global market expansion, they have enlisted Capgemini to be their long-term strategy partner across digital, marketing, experience, and data. With a world-class technology organization service across the brands, the client aims to increase speed to market by up to 25% and double their digital sales in the next three years enhanced digital data cloud and AI capabilities, and also improve the experience for their guests and franchises. We were selected because of our deep restaurant domain experience, specific industry segments, cloud and development assets, and credentials based upon our work across 40 plus brands in this particular industry. With that, I am happy to continue.

Thank you, Olivier, and good morning, everyone. I am pleased to share with you our H1 2024 performance. As mentioned by Ayman, Capgemini demonstrated its resilience in a macro environment which remains soft. Group revenues reached €11,138 million in H1 2024, down minus 2.5% on a reported basis and minus 2.6% at constant currency. Operating margin amounted to 1,384 million euros, or 12.4% of revenues, a stable percentage year-on-year. After other operating expenses, financial and tax expenses, which I will further comment in a moment, the net profit group share reached 835 million euros, up 3% year-on-year. Normalized EPS, reached 5 euros and 88 cents, up 1% year-on-year. Finally, we generated an organic free cash flow of 163 million euros, up 216 million euros year-on-year. Moving on to our quarterly revenue growth. As mentioned by Ayman, we have passed the trough in Q1, and revenue growth rates improved in Q2 as expected in all businesses and almost all regions and sectors. On an organic basis, decline in Q2 revenues is limited to minus 2.3% compared with minus 3.6% in Q1. This brings our H1 organic growth to minus 3%. Taking into account the group scope impact, the growth at constant currency is minus 1.9% in Q2 compared with minus 3.3% in Q1, leading to minus 2.6% for H1 overall. FX became a tailwind in Q2 with a 40 basis point positive impact, leading to a 10 basis point positive impact in H1. As a result, reported growth is minus 1.5% in Q2 and minus 2.5% in H1. At this point, we expect FX to have a neutral impact for the full year 2024. Moving on to revenues by region. After several quarters of continued deceleration, the trajectory of our growth rates evolved favorably in all five regions. As anticipated, North America is the region where growth rates improved the most in Q2. Whereas in other regions, growth either slightly improved or stabilized. Turning now to H1 revenues of constant currency. Revenues in North America region decreased by minus 5.4% year-on-year. While the TMT sector improved visibly in Q2, the financial services and consumer and retail sectors remained a drag, only partly offset by growth in the manufacturing sector. Revenues in the United Kingdom and Ireland region declined by minus 2.8%, mostly driven by the financial services and consumer goods and retail sectors, in spite of solid growth in the energy and utilities and services sectors. Activity in France was down minus 2.7%. Solid momentum in the public sector was more than offset by visible softness in the TMT, manufacturing, and financial services sectors. Revenues in the rest of Europe region were virtually stable at minus 0.1%, with a strong momentum in the energy and utilities and public sectors offset by visible contraction of the TMT sector. Revenues in the Asia-Pacific and Latin America region were down minus 1.6%, mainly driven by the decline of the financial services sector, partly offset by growth of the consumer goods and retail and public sectors. Moving on to our revenues by business. All businesses experienced an improvement of their revenue trends in Q2 when compared to rates reported in Q1. The 3.7% growth in our management consulting business That is, strategy and transformation stands out and illustrates client demand for strategic consulting in their transition towards a more sustainable and digital model, further supplemented by their growing interest in exploring GNI opportunities. Across H1, overall, at constant currency, total revenues of strategy and transformation services are up 2.7% year-on-year. Total revenues of applications and technology services, which are Capgemini's core business, declined by minus 3.4%. Lastly, operations and engineering total revenues decreased by minus 1.8%. Moving on to the headcount evolution. Total headcount stands at 336,900 employees at the end of June, down by 4% year-on-year, but stable since the end of March 2024. The offshore leverage stands at 57%, stable since the end of 2023. Lastly, attrition decelerated further over the past quarter. This brings our last 12-month attrition rate to 15.2%. Moving on to our operating margin by region. As is often the case with half-yearly publications, we experienced more fluctuations in regional margin evolution than what we typically do on a full-year basis. So please keep in mind, that H1 regional margin evolution does not necessarily provide a full representation of what the full year evolution will be. Operating margin in North America stands at 15.5%, up 30 basis points year-on-year. UK and Ireland operating margin amounts to 20.5% compared with 18.4% in H1 last year. Operating margin in France is down to 9.1% from 11.1% in H1 2023. The rest of Europe operating margin is up to 11.1%, up by 60 basis points year-on-year. Finally, operating margin in Latin America and Asia-Pacific is 10.5%, slightly up from 10.2% in H1 last year. Moving on to the analysis of our operating margins. Overall, the continued shift in Capgemini's mix of offerings towards more innovative and value-added services more than compensated for the inflation impact in H1 2024. This illustrates the resilience of the group's operating model in a soft demand environment. The 50 basis points increase in gross margin, coupled with a nearly stable G&E expense, has offset the investment and selling expenses to fuel future growth. Moving on to the next slide. Our net financial result for H1 2024 is an income of €20 million as opposed to an expense of €20-22 million in H1 last year. This swing was primarily driven by higher interest income on our cash assets, while our bond debt is entirely at fixed rates. The income tax expense increased by €30 million year-on-year to €326 million. Our effective tax rate is almost stable at 28% compared with 27.8% in H1 last year. Let's turn now to the recap of our P&L from an operating margin to net income. The other operating income and expenses are down 25 million euros year on year at 237 million euros, mainly driven by lower restructuring and integration costs over the period. Our operating profit is €1,147 million, or 10.3% of revenues up by 20 basis points year-on-year. After financial and tax expenses, minority interests, and equity affiliates, the group share in net profit amounts to €835 million, up 3% on H1 2023. Consequently, the basic EPS is up 4% to €4.88, while our normalized EPS reaches €5.88, up 1% year-on-year. Finally, let's have a look at the evolution of our organic free cash flow and net debt. As you know, our cash generation pattern is highly skewed to the second half of the year. We generated an organic free cash flow of €163 million in H1. Therefore, we confirm our target of around €1.9 billion for FY 2024, which notably takes into account an increase of our cash tax rate. A few final words on capital allocation. The bolt-on acquisitions closed in H1 translated into a limited net cash outflow. In this context, we increased our returns to shareholders, which reached €905 million in H1 2024. This comprises €580 million corresponding to the 2023 dividend, and €325 million net for share buybacks. Consequently, our net debt stands at €2.8 billion at the end of H1. This compares with €3.2 billion at the end of H1 last year and €2 billion at the end of 2023. On this note, I hand back to Ayman for the Q&A session.