Capgemini Se Ord

Good day and thank you for standing by. Welcome to Capgemini H1 2025 results 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 need to press star 1 and 1 on your telephone. You will then hear an automatic message advising you on this race. 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, Mr. Ayman Azad, CEO. Sir, please go ahead.

Thank you. Good morning, and thank you for joining us for this H1 2025 results call. I'll be joined today by our CFO, Nivi Bhagat. Our performance continues to improve through the first half of the year and due to slightly exceeded expectations. In a volatile economic environment and persistent leaks of demand, we have demonstrated the strong resilience and adaptability in navigating these challenging conditions. We see the benefits of the action announced in Q3 2024. The revenue growth rate gradually improved quarter after quarter, and the group returned to positive constant currency growth in Q2 at plus 0.7% year on year. For H1 2025, revenue reached 11,107,000,000 euros, up 0.2% year-on-year. Bookings totaled 11,993,000,000 euros over the period, plus 2.1% year-on-year. The commercial momentum is solid, with a book to bid of 1.08, despite client decision cycles that remain lengthy in this environment. The operating margin amounts to €1,377,000,000, or 12.4% of revenues, so stable year-on-year. In a challenging environment, the performance in H1 demonstrates the resilience of the group's operating model and the improvement of our operational efficiency. Our organic free cash flow features a traditional seasonal pattern, as you know, so plus €60 million in H1 2025, and the normalized EPS stands So in Q2, revenue growth was stable or continued to gradually improve compared to the previous quarter across all regions, businesses, and most sectors. First, from a geographic perspective, growth rates in the UK and Ireland, North America and Asia Pacific and Latin America have accelerated. Growth rates in continental Europe, including France, more stable. From a sector perspective, financial services and T&T sectors continue to accelerate, which meet single-digit constant currency growth. Manufacturing also improved, but continues to weigh on the group growth. Finally, from a business perspective, strategy and transformation and application and technology maintain their positive growth rates. The strongest improvement came from operation and engineering, fueled by improvement across all the business lines, particularly in business services, which recorded high single-digit growth. So in the first half of the year, clients remained focused on driving efficient speeds through cost transformation program. Discretionary spend was still muted. Our positioning as a business and technology transformation partner of our clients is well-recognized, and in that context, Capgemini continues to enjoy strong traction thanks to our high-value service offering. This is particularly visible in cloud and data and AI. So to illustrate this, let me share a few examples. On cloud, Capgemini secured a multi-year framework agreement reinforcing our role as a trusted advisor and strategic partner to a key public sector client in Europe. Our solution is anchored in the integration of cutting-edge cloud technologies, including sovereign cloud capabilities, tailored for high-security environment. It outlines a clear pathway towards sovereign cloud infrastructure while driving the modernization of applications and processes to enable a next-generation digital platform for public service delivery. On the intelligence industry side, CAP generalized secure the strategic contract to support a leading global aerospace company. The objective of this engagement is to accelerate production while significantly reducing non-conformities. Our delivery model played a decisive role in securing the contract. It combined the use of generative AI to create comprehensive design solution based on historical analysis and follows a self-deployment model that ensures continuous support through globally distributed technical teams. Finally, Capgemini has been chosen as a strategic partner of a U.S. high-tech company to spearhead this global finance transformation. To that end, we redesigned Capgemini formalize and deploy a multi-year finance transformation roadmap that defines and prioritizes the portfolio of viable transformation projects within all finance capabilities. Ultimately, we will operate the client's operational finance activities and move them to best-in-class processes while optimizing them thanks to technology such as AI. Now, if you look at the underlying trends in the market now, we see continuous traction for the technologies at the core of tech-driven business transformation. There is a clear appetite for digital core. It's driven by strong demand for a giant ERP-enabled business transformation. Companies today have a cloud-first strategy. Cloud continues to be a major subject of interest and choose discussions with our client as they design their data and AI strategies. And in the realm of data and AI, we see strong demand to harness advanced analytics and artificial intelligence to generate actionable insights and fuel innovation. So thanks to our end-to-end model, our industry expertise, and strong ecosystem of partners, we are well positioned to capture this demand at scale. At the same time, we observe some fast-rising traction and accelerating momentum in some new areas. First, on defense and sovereignty, momentum is particularly high in Europe. We are very well positioned being one of the very few European skill players combining a leading position in all relevant capabilities and industries. On intelligent operation, to transform and operate horizontal and vertical business processes, leveraging GNI and JTKI. With the acquisition of WNS, we will provide the group with the scale and vertical sector expertise to capture that's rapidly emerging strategic opportunity created by the paradigm shift from traditional BPS to agentic AI-powered intelligent operation. And, of course, continue to see fast-rising demand in Gen AI and agentic AI more generally. Now, coming to the Gen AI, agentic AI, you know, the market is showing strong momentum, which together, Gen AI and Gen TKI contributed to over 7% of our Q2 bookings. We continue to invest in strategic assets to strengthen our position and accelerate, notably the launch of the Resonance AI Framework, our strategic blueprint designed to help leaders conceptualize, structure, and drive successful AI-powered transformation. The expansion of our AI first portfolio, we have structured and enriched our offering by enterprise domain to comprehensively address client needs. And the continuous enhancement of our RACE platform, now featuring a gallery of AI agents, Gen-AI assistants, and agentic systems. We have also introduced an agentic AI builder, a robust suite of tools and frameworks to design, orchestrate, and monitor multi-agent workflows. So let's highlight a couple of examples from our Q2 wins. For global media firms, we opened new frontiers with intelligent operations for finance to transform the predominantly manual operation. We developed a suite of AI agents that automate complex variable tasks and empower real-time data-driven decision-making, enhancing both efficiency and strategic insight. For U.S. energy clients, we refactor a legacy application using generative AI, energetic AI technologies to a proprietary accelerator that automates code conversion. AI enables the analysis of legacy code structures and suggests an automate, refactoring steps to improve maintainability, performance, and integration in modern systems. This makes this effort a scalable proof of concept for modernizing numerous other applications, improving operational efficiency and reducing time for market. Finally, for global life science clients, we automate the analysis of the build-up materials to accelerate the duration of environmental reports for medicines by leveraging GMAI, the time to produce ISO-compliant reports can be reduced from several weeks to minutes. This acceleration enables our clients to respond faster to tender requirements, protecting billions of annual revenues at risk. Now, coming to the outlook, as we enter Q3, we see some stability in the environment. While we update our growth outlook today, we decided to retain the cautious stance adopted at the beginning of the year. So, in order to account for the uncertainty created by geopolitical tensions and a slow economy. So, after this good H1 performance, we narrow our cost and currency growth outlook to between minus 1 and plus 1%. On the M&A contribution to growth, it is now assumed to be limited to around one point versus one to two point initial. This means that we are narrowing up the underlying target. The operating margin target of 13.3 to 13.5 and the organic free cash flow objective of around 1.9 billion euros remain unchanged. As a reminder, our act does not take into account the contemplated acquisition of WNS. Thank you for your attention, and I'll hand over to Libby.

Thank you, Ayman, and good morning, everyone. I'm pleased to share with you the highlights of our H1 2025 results. After a good start to the year, our Q2 revenues also came slightly above our expectations. Overall, group revenues reached €11,107 million in H1 2025, up plus 0.2% at constant currency and slightly down minus 0.3% on a reported basis. Operating margin amounted to 1,377 million euros or 12.4% of revenues stable year-on-year. After other operating expenses, financial and income tax expenses, the net profit group share reached 724 million euros compared with 835 million euros in H1 last year. Basic EPS stands at 4 euros and 26 cents down minus 13% year-on-year while normalized EPS is plus 2% year-on-year to 6 euros. Finally, we generated an organic free cash flow of 60 million euros in H1 2025 compared to 163 million euros in H1 last year. Moving on to our quarterly revenue growth. Our revenue growth rate gradually improved during H1 and the group returned positive constant currency growth in Q2 at plus 0.7% year-on-year. This was notably supported by the targeted actions that we'd announced at the end of Q3 2024. This represents 110 basis points improvement compared with the Q1 growth rate and brings this to plus 0.2% of our constant currency growth for H1. In line with our comments at the beginning of the year, M&E contributed around one point over the period. Turning to FX, with the depreciation of the U.S. dollar, currency movements became a headwind in Q2 with a negative impact of 170 basis points. For the first half of the year, FX had a negative impact of 50 basis points. As a result, the reported growth was minus 1% in Q2 and minus 0.3% for H1. At this point in the year, we expect the FX impact to remain a headwind in the second part of this year, leading to a negative impact from minus 1.5 to minus 2 points for the full year. Moving on to bookings. The group enjoyed a solid commercial momentum in the first half of the year. Bookings totaled 12 billion euros in H1 with 6.1 billion euros in Q2. This represents constant currency growth of plus 2.1% and plus 1.5% year-on-year respectively. Book-to-bill reached 1.10 in Q2. This brings our H1 book-to-bill ratio to a strong 1.08. Looking first to revenues by sector. Most of our sectors enjoyed a gradual improvement in their revenue growth rates through the first half of the year. Therefore, I will focus my comments first on Q2. The financial services and TMT sectors each grew plus 5.5% year-on-year in constant currency, marking their fifth consecutive quarter of improvement, while the manufacturing sector remained weak in Q2 at minus 4% year-on-year on a high basis of comparison in Q2 last year. It also improved visibly with a growth rate up by 190 basis points versus Q1. The energy and utilities and public sectors remain solid in Q2, up 2.3% and plus 1.4% respectively, although decelerating slightly versus their Q1 growth rates. Lastly, the consumer goods and retail sector and the services sector remain under pressure in Q2 with a slight contraction similar to Q1, at minus 1.3% and minus 1.7% respectively. Moving on to revenues by regions. Let's start with Q2 revenue trends and see how they compare to those reported in Q1. Growth rates continue to improve in North America, United Kingdom and Ireland, and in the Asia-Pacific and Latin America regions, all of which were already very solid in Q1. France and the rest of Europe region reported growth rates in Q2 similar to Q1. Turning now to H1, where I discuss year-on-year growth at constant currency. Revenue growth in North America was 1.6% and reached 6% in the United Kingdom and Ireland region. In both regions, growth was mainly driven by financial services, TMT, and energy and utility sectors. Asia-Pacific and Latin America region enjoyed strong growth at plus 8.7%, mainly fueled by the financial services and TMT sectors that enjoyed double-digit growth. Conversely, revenues in France and rest of Europe region declined by minus 5% and minus 2.3% respectively. In both regions, growth in resilient public and P&P sectors was more than offset by loan activity in the manufacturing and consumer goods and retail sectors. Moving on to operating margin by region. As is often the case with half-year results, 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 improved by 80 basis points to 16.3%. For France, you might remember that last year's operating margin was affected by one-off items. Excluding these one-offs, there has been no improvement in the underlying margins. Operating margin in the UK and Ireland region remained at high level at 18.1%, although it declined by 240 basis points compared with the record level reached in H1 last year. Lastly, operating margin in the rest of Europe and Asia-Pacific and Latin America regions was down year-on-year by 70 and 40 basis points respectively. Moving on to revenues by business. All have businesses delivered higher year-on-year revenue growth rates in Q2 2025, when compared to Q1. The strongest progress came from operations and engineering, with visible improvement across all its business lines. We are notably pleased to report that business services recorded high single-digit growth in Q2. Turning now to H1, its constant currency. Total revenues of strategy and transformation services grew by plus 1.3%. Total revenues of applications and technology services, which is Capgemini's core business, was up by plus 2.6%. Conversely, operations and engineering total revenues decreased by minus 1.5%. Now moving on to the headcount evolution. Total headcount stands at 349,400 employees at the end of June 2025, up by 4% year-on-year and by 2% since the end of March 2025. While our onshore headcount decreased slightly by 1% year-on-year, our offshore headcount increased by 7% over the period. Consequently, the offshore leverage stands at 59% in June 2025, up by two points compared with June 2024. Lastly, attrition increased slightly over the past quarter. This brings our last 12-month attrition rate to 16.1% at the end of June 2025, up by almost one point year-on-year, but still well within our nominal operating range. Moving on now to the analysis of our operating margins. The continued shift in Capgemini's mix of offerings towards more innovative and value-added services, combined with a strong focus on cost discipline, enabled the group to offset the impact of current market softness on our growth margin. A 26.4% growth margin is down 30 basis points year-on-year, but still 20 basis points above H1 2023 level. After an increase last year, Selling expenses and GMA expenses are now down by 10 and 20 basis points, respectively. Consequently, the operating margin remains stable at 12.4% of revenues in H1 2025. This demonstrates, again, the resilience of the group's operating model in a challenging environment. Moving on to the next slide, our net financial result is an income of €16 million compared to €20 million in H1 2024. The income tax expense decreased by 66 million euros year-on-year to 260 million euros. The effective tax rate stands at 26.2% in H1 2025, down to 28% for the same period last year. This is due to a positive, non-cash, one-off tax item that will not repeat in H2. Hence, our EPR will be higher for the full year, and this is known fact, on our cash tax rate that is expected to be substantially higher in 2025 than it was last year. Let's turn to the recap of our P&L from operating margin to net income. The other operating income and expenses represent a net expense of 401 million euros, up by 164 million euros year-on-year. This was notably driven by restructuring costs, which are not only higher this year as anticipated, but also more skewed to H1 in 2025. These stood at 136 million euros in H1 2025, versus 53 million euros in H1 2024. Consequently, our operating profit amounts to 976 million euros, or 8.8% of revenues, compared with 1,147 million euros at 10.3% in H1 last year. After financial and tax expenses, share of equity affiliates, and non-control of interest, the group share in net profit is down minus 13% year-on-year at 724 million euros. While the basic EPS is also down minus 13% to 4 euros and 26 cents, our normalized EPS is up plus 2% year-on-year to 6 euros. Finally, let's have a look at the evolution of our organic free cash flow and net debt. We generated an organic free cash flow of 60 million euros in H1. As you know, Our cash generation pattern is highly skewed to the second half of the year. A few final words on capital allocation. In H1 2025, the group paid dividends of 578 million euros and invested 28 million euros on vote-on acquisitions. Consequently, our net debt stands at 2.8 billion euros at the end of H1. This compares with 2.8 billion euros at the end of H1 last year and 2.1 billion euros at the end of 2024. As you saw in our press release this morning, the Board of Directors have approved a new multi-year share buyback program of €2 billion, which will essentially be funded by the group's organic free cash flow. As a reminder, in June 2025, the group redeemed in full and at maturity the €800 million bond issued in June 2020. So on that note, I hand back to Ayman for Q&A session.