Capgemini Se Ord

Good morning and thank you for joining us for this Q1 2025 revenue call. I'll be joined today by our CFO, Nivi Bagat. So in Q1, the group delivered a performance slightly better than our initial expectation. This comes despite the macro and geopolitical environment that remains challenging. The group generated revenues of $5,553,000,000 representing a year-on-year revenue decline limited to minus 0.4% at constant exchange rate, which represents a 70 bps improvement on the Q4 rate. The contribution from M&A in the quarter is around 1 point. Bookings were up 2.8% at constant exchange rate and reached 5,884,000,000, which represents a strong book to build for a Q1 of 1.06. Looking at the trends we observed in this first quarter, they are consistent with our anticipation. From a sector perspective, manufacturing remained weak, with growth rates similar to Q4, and therefore continue to weigh on the group growth. Financial services and public sector on the other side maintained a good momentum, enjoyed in Q4. The improvement compared to Q4 primarily came from the energy, utilities, TMT, and services sector. Now, from a geo perspective, North America is back to slight growth in Q1 at plus 0.8%. Growth rates in the UK and Ireland, Asia Pacific, and Latin America are also accelerating, and that's partly offset by the deceleration observed in the rest of Europe. Finally, France has now passed the trough. And from a business perspective, strategy and transformation maintain positive growth rates. Application and technology returned to growth this quarter, while operational engineering decelerated to minus 2.6%. When you look at the clients, they are really focused on transformation programs aimed at improving agility, cost, and efficiency of the operation at the expense of what we consider as being more growth-oriented projects. And as you expect, discretionary spending remains subdued. Compared to three months ago, the level of uncertainty increased with geopolitical and tariff tensions. At this stage, the group has not seen a material impact on client decisions compared to the beginning of the year. But of course, we remain extremely cautious of any potential developments. In that context, Capgemini high value added services around cloud data, AI, digital core, or even digital continuities continue to enjoy a good growth in Q1. Our offering portfolio aligned with current customer needs is leading to some noticeable deals. For instance, for US leader in the pharma industry looking to significantly increase production capacity in Europe in the next few years, We were chosen to transform and accelerate the digitization of the manufacturing processes thanks to our industry expertise and strength in manufacturing execution system. We will also manage a dedicated application management service center for the production lines IT systems. For European clients in the defense sector, we are developing a digital twin for various components of a defense platform. This project leverages the results of a dedicated test campaign. Our comprehensive activities include mechanical analysis prediction and correlation of test results and the development of advanced programming tools to interface sensor readings with a structural model. This integrated approach ensures accurate and efficient monitoring and optimization of the platform's structural integrity. Continuing on that, let's illustrate now the ongoing dynamics in the defense sector in Europe, where we see increasing opportunities. We are building on a strong track record and leadership position over many years. In 2024, we generated about a billion euros of revenue in European defense, up 12% year on year. We are well positioned, being one of the very few European skilled players, combining a leading position in all relevant industries. combining digital, engineering, data and AI, cyber, and transformation capabilities. Looking at our activities across Europe, we are engaged with ministries of defense, with the EU, with international agencies to provide direct support for the transformation of armed forces. We provide support to most top tier defense industry players across Europe on their ongoing program. Our support extends to their supplier networks, addressing demand for ramping up and ensuring high quality standards. Beyond mastering supply and quality and production management, we also help with the integration of workforce management and data tech and AI foundations, of course. We are involved in several upcoming key defense programs, and we are working with specific agencies, next frontier program, usually on cutting edge technology. We are committed to support the exploration of European defense. We launched a specialized defense exploration program designed to address cross-border defense programs, accelerate the buildup of capabilities, and strengthen our collaboration with ecosystem partners. Now, moving to AI, the traction, of course, continues to be very visible around AI and data, where client demand remains robust. This dynamic is supported by generative AI, which draws more than 6% of our Q1 bookings. We also have the emergence of agentic AI, which is driving a new wave of operational efficiency and value creation. The market is increasingly receptive to AI agents, and we are strategically positioned to seize this growth opportunity. Our investments in key assets are bearing fruit. For instance, we deployed a platform to create, integrate, orchestrate, and monitor trusted AI agents. Coupled with our agentic AI gallery, it will help us accelerate deployment at our clients while ensuring security and privacy. We enrich our offering with agentic AI to bring them to the next level of hyper automation, context understanding, and scientific innovation. We now have 10 agentic AI offers addressing customer experience, engineering, operation, or application mainframe refactoring. We also reinforce our ecosystem of technology partners. We now have 25 dedicated partnerships We recently expanded our strategic partnership with Google Cloud to transform customer experience across industry with agentic AI and with NVIDIA to build bespoke AI agent-driven solutions tailored to various industry use cases. We already successfully executed numerous projects on agentic AI. By leveraging AI agents, we can achieve hyper-automation of complex variable processes that were previously beyond the reach of traditional data RPA or conventional AI methods. We're also combining agents with generative AI assistance to augment the human teams on what can be automated. Let's highlight a couple of examples from the first quarter. For BAT, we developed AI co-scientist agents to support the R&D teams, which will result in more efficiency and effectiveness in R&D, and providing them with the capability to gain insights and value from both external and internal data sources, and also predictive models. And for European telco, we are developing an agentic solution to enable autonomous networks with the implementation of agents in network domain coordination. In spite of increased geopolitical tariffs and tensions, for the moment the group has not seen a material impact on client decision compared to the beginning of the year. After this Q1, we also expect Q2 to be slightly better than anticipated, and therefore now see our H1 constant currency growth as slightly better than Q4 rate. We are confirming our financial objective for 2025, and as such, we do retain the cultural stance adopted at the beginning of the year. As a reminder, our financial objective for 2025, our revenue growth of minus two to plus two at constant currency, operating margin of 13.3 to 13.5, an organic free cash flow of around 1.9 billion euros. Thank you for your attention. I now hand over to Nivis.

Thank you, Ayman, and good morning, everyone. I'm pleased to share with you our Q1 2025 performance. Let's start with our quarterly revenue growth. As highlighted by Ayman, we had a good start to the year. Q1 revenues came slightly above our expectations at 5,553 million euros, up plus 0.5% year-on-year. Currency movements had a positive impact of 90 basis points, mainly due to the appreciation of the USD against the Euro. So the revenue decline at constant currency was limited to minus 0.4%, which represents a 70 basis points improvement on the Q4 2024 growth rate. Finally, in line with our comments at the beginning of the year, M&A contributed to around one point in Q1. A word on currencies. There has been a lot of volatility lately. Based on where we are today, we expect FX impact to now turn negative from minus 1.5 to minus 2 points in Q2 and minus 1 to minus 1.5 points for the full year. Looking first at revenues by sector. At constant currency, financial services and the public sector maintained their solid momentum in Q1 2025 and grew by 2% and 2.7% year-on-year respectively, in line with their performance in Q4 2024. The energy and utility sector improved by 470 basis points in Q4 growth rates, returning to growth in Q1 at plus 2.5%. The TMT sector delivered a fourth consecutive quarter of improvement with robust growth of plus 3.8%. The manufacturing sector remained weak but did not degrade further. It declined by minus 5.9% in Q1, a rate similar to Q4. The consumer goods and retail sector turned slightly negative in Q1 to minus 1.5%. Finally, revenue growth in the services sector improved by 340 basis points on Q4 2024 with a decline limited to minus 1.8% in Q1. Moving on to revenues by region. The improvement in the growth rate compared to Q4 was primarily driven by a 240 basis points acceleration in North America and a 240 basis points improvement also in the United Kingdom and Ireland region. Revenues in North America were back to slight growth in Q1, up plus 0.8% year on year. This performance was driven by TMT and financial services sectors and partly offset by a decline in the manufacturing sector. Growth in the United Kingdom and Ireland region accelerated to plus 3.9%. Energy and utilities and financial services sectors contributed to this growth. Revenues in France declined by minus 4.9%, most notably due to persisting weakness in the manufacturing and energy and utility sectors. In the rest of Europe region, revenues were down by minus 2.3%, reflecting the decline in the manufacturing sector, whereas other sectors were broadly stable. The Asia-Pacific and Latin America region enjoyed solid growth, with revenues up plus 7.6%. The public and TMT sectors posted a strong growth, complemented by robust momentum in the financial services and manufacturing sectors. Moving on to revenues by business. At constant currency, total revenues of our management consulting business, strategy and transformation services, grew by plus 1.2% year-on-year in Q1, in line with our performance in Q4 2024. Application and technology services, which is Capgemini's core business, returned to growth in Q1 with plus 1.9% year-on-year. Conversely, total revenues in operations and engineering services further declined in Q1 with a contraction of minus 2.6% weighed down by the large exposure of engineering services to the weak manufacturing sector. Moving on to the bookings evolution. Q1 bookings amounted to 5,884 million euros up plus 2.8% year-on-year at constant currency. This corresponds to a strong book-to-bill ratio of 1.06. This is above the historical average for the period and reflects our good performance on large deals. Moving on now to the headcount evolution. Total headcount increased slightly over the past quarter to reach 342,700 employees at the end of March 2025. This represents an increase of 0.5% compared to December 2024 and 1.6% year on year. Onshore headcount decreased by 1.4% to 143,300 employees while offshore headcount was up plus 3.9% to 199,400 employees. This corresponds to 58% of our total headcount up plus one point year-on-year. Lastly, attrition remains in our optimal operating range at 16.1% on a last 12-month basis. On that note, I hand back to you, Ayman, for the Q&A session.

Thank you, Nivi. So let's now open the Q&A to allow a maximum number of people in the queue to ask questions. I kindly ask you to restrict yourself, as usual, to one question and a single follow-up. Operator, could you please share the Q&A instructions?