Capgemini Se Ord

Good day and thank you for standing by. Welcome to the Capgemini full year 2025 results webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll 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 have a conversation with your first speaker today. Ayman Ezzat, CEO. Sir, please go ahead.

Thank you. Good morning. Thank you for joining us for the full year 2025 results call. And I'm joined, of course, by our CFO, Nivi Bhagat. So Capgemini delivered a solid set of results for 2025. Operating margin and organic free cash flow were on target and revenue growth finished above the upgraded guidance. In a demand environment that remains largely unchanged, our underlying performance transcends quarter after quarter, with momentum improving across regions, businesses, and sectors. We won where clients invest in cloud, data and AI, and digital business process services. We captured where it matters most to clients, the large transformation programs. For the year, revenues were 22.46 billion euros, representing 3.4% growth at constant currency, with around 2.5 points of scope impact. Bookings were 24.36 billion, which represents a solid 1.08 book-to-bill for the year and a strong 1.21 in Q4, which is really an evidence of sustained commercial traction driven by a higher number of large deals. We demonstrated the strong resilience of our operating margin at 13.3%, and organic free cash flow at 1.95 billion in spite of cost pressure due to a higher bench in continental Europe. Normalized EPS stands at 12.95 euros plus 5.8% year-on-year. In line with our dividend policy, the board will propose a 3.4 euro per share dividend at the annual general meeting. So in a fast-changing environment, we also took strategic steps to lead in AI intelligent operation and to reinforce our position on sovereignty. And I will discuss these market trends shortly. So we finished the year on a strong note with another improvement in our underlying growth in Q4. Constant currency growth was 10.6% in Q4, including a scope impact of about 6.5 points, driven primarily by WNS and Cloud4C. Now, stepping back and focusing on the underlying trend, we clearly see the benefits from the actions implemented over the last quarter. All regions improved between Q1 and Q4. North America recorded the strongest acceleration, while UK and Ireland and APAC and LATAM improved on an already solid performance. France gradually improved, but it remains challenging at year-end. The recovery in the rest of Europe was more pronounced, and it's now back to growth. The improvement is also visible across sectors, which all have significantly improved since the beginning of the year. Even manufacturing is now stable year on year, excluding M&A impact. Finally, from a business perspective, operation and engineering recorded the strongest acceleration, both at constant currency and organically, with double-digit growth in digital BPS across both Capgemini and WNS. One of the highlights of 2025 is the strength of our ecosystem of technology partnerships. Today, more than two-thirds of our bookings are associated with our top 12 technology partners. And in a world driven by cloud data and AI, cyber and sovereignty, clients are looking for solutions combining ecosystem of technology partners and services provided by relevant transformational focus leveraging industry domain and functional expertise. I also want to highlight specifically the defense sector, which continues to enjoy double-digit growth in 2025, and as the leading European player, Capgemini is uniquely positioned to capture this structural growth opportunity. I do expect to see further acceleration in the next 2-3 years as Europe ramps up its defense programs. So we expect good growth to continue in H1, for Q1 in line with Traditional seasonality constant currency growth should be in the range of 8.5 to 9.5% in constant currency with around 6.5 point of contribution from M&A. So quick word about our 225 ESG policy achievement. So again, here we demonstrated continued improvement in corporate responsibility with major progress on our ESG roadmap. So let me highlight a few points. From an environment standpoint, we accelerated towards our target of being net zero across all schools by 2040, reaching 100% renewable electricity for all operations. We also made notable progress in gender balance. Proportion of women in the global workforce reached 40.5%, up seven points since 2019. And for women among executives, leadership position, we reached 30.5%, up 13 points since 2019. Finally, on governance, we made further progress around cybersecurity with a cyber value score of 990 out of 1,000, positioning us as the leader in our industry. Now let's focus on our growth engine, and of course, let's start with AI. So AI in the enterprise has become a reality. Maturity is increasing about its possibilities, but also about what it will take to achieve real adoption and measurable results. So 2026 is really the moment of truth for AI. The moment where AI must transition from POCs to measurable business impact, embedded in cooperation, delivering values through AI powered transformation. As we move to transformation, there is a growing awareness that the foundations are not yet in place. Whether we're talking about infrastructure, data, standardized governance, risk and compliance frameworks, In practice, clients face siloed legacy systems, preventing AI workflow orchestration, poor data availability and quality, preventing AI performance and fine-tuning, and legacy workloads running on-premise and preventing AI compute at scale. Finally, it's about human-AI collaboration and trust. This is where the real complexity lies. This is our playing field. All this complexity, this is where we can drive real transformation, requiring strong business acumen, domain knowledge, transformation capabilities, data and AI, and technology depths. And in this context, Capgemini has the right capabilities and setup to deliver AI transformation to our clients, leveraging appropriate ecosystem and partnerships. Now let's take a couple of examples to make that more concrete. So just The first client example is a client who wants to identify its procurement activities end-to-end to be more competitive. So from strategy and sourcing to procure to pay and end-to-end processes. So we are currently building a suite of seven agentic products that will provide market intelligence, assist buyers in the sourcing phase, analyze supplier responses to tenders, automate food cost calculations, simulate cost scenarios, analyze cost variances, consolidated forecasting, draft contracts, and automate value tracking. As you see, the scope is pretty comprehensive. And the product is targeted to deliver tangible impact in the short term, strengthen working capital by optimizing payment terms, reducing inventory exposure, and improving the cash impact of procurement, decrease operational and purchasing costs through automation and smarter decision-making, and lower process execution costs and reduce reliance on manual efforts across procurement workflow. We can already document 27 million euros of savings to date through what has been achieved. Our second client was facing issues of data center reliability with significant financial impact up to hundreds of thousands of dollars per minute of downtime of outage in addition to reputation damage. We developed a physics-informed AI model identifying abnormal variation to predict and prevent equipment catastrophic failures, an alerting platform integrated with existing orders workflow that's not requiring any operator training, and a global and unified view of equipment operation relationship and performance, feeding back operational and design improvement. Implemented and live, our solution has successfully prevented and mitigated Catastrophic events saving our customers millions and millions every year. And just one key metric, we have avoided around 50 critical incidents prevented per year. Now moving on to the second vector of growth, which is intelligent operation, which we consider still to be the largest showcase for agentic AI. WNS was acquired in that context to provide the skill and vertical expertise required to lead in this market. The integration is proceeding as planned and should be operational in H2. I can confirm that the benefits are on track. Let me remind you, annual run rate of revenue synergies of 100 to 140 million by the end of 2027 and annual run rate of cost synergies of 50 to 70 million also by the end of 2027. The go-to-market activities as expected are vibrant and we have today 100 cross-selling opportunities identified. The intelligent operation pipeline of opportunities is also growing with some very large deals in pursuit. With intelligent operation, we are leveraging AI to reshape and run entire areas of client business operation to achieve end-to-end strategic value creation by combining cost efficiencies and enhanced business outcomes. Happy to report that we closed our first mega deal of over 600 million euros for a large global company, covering multiple functions and processes based on a true agentic AI-led transformation solution, delivering significant cost reduction and enhanced business outcome, and operating on a non-NFT-based commercial model. So this is the largest of several contracts signed in the last four months with some potential extensions of scope. And this is a clear proof that the intelligent operations strategy is working and will be one of our growth pillars in the coming years. Let me move on now to sovereignty, where we see a significant appetite from clients to help them develop and implement the sovereignty strategy. This has become a huge topic in today's multipolar world. I took this as proof, I take as proof this striking figure. Over 50% of services contracts will include some sovereignty requirements by 2029, up from 5% in 2025, according to Gartner. And sovereignty is not a monolithic framework, but is composed of four key dimensions, data, operations, technology, and regulation. And no one can really be sovereign across the full value chain. Now, it is clear that as the largest European player, we are a driving force in developing offerings, ecosystems, and partnerships to help large organizations implement sovereignty-enabling solutions adapted to their needs and environment. We reinforced our solutions portfolio with the acquisition of Cloud4C, providing hyper-automated, AI-ready, locally-governed cloud operations with sovereign compliant monitoring, disaster recovery, cybersecurity, and continuity And in addition, we specialization across some industries and sovereign compliance frameworks. Now we are leveraging cloud forces set up to create the European hosted mirror platform to operate our European customers sovereign workload. This is a perfect compliment to our blue CECNAM cloud JV with orange in France. We are also leveraging our core partners sovereign solution. We made three announcements in the past week. with Google Cloud, AWS, and Microsoft, in addition to the software technology partnership signed with SAP in November. Now, we are extremely well positioned to capture the growth trend on sovereignty. Now, the market is moving fast, and while a few areas have been softer in recent years, the opportunity set ahead of us is really compelling, especially in AI, intelligent operation, and sovereignty, as I have outlined earlier. We are executing a clear plan with selective strategic M&A, disciplined investment, and a sharper focus on where we lead. Today, we are accelerating also our capability shift in order to deliver on the growth agenda. This will translate in a number of country-specific workforce and skills adaptation initiative, leading to an estimated 700 million euros restructuring over the next two years. This fit for growth local initiatives, strengthen our competitive position, and support sustained and profitable growth. For 2026, our targets are clear. Constant currency revenue growth of around 6.5 to 8.5%, with inorganic contribution of around 4.5 to 5 points. Operating margin of 13.6 to 13.8, organic free cash flow of around 1.8 to 1.9 billion, including the estimated year-on-year increase of around $200 million in restructuring cash out. In 2026, we're going to demonstrate our ability to set the group on a new profitable growth agenda around AI, intelligent operation, and sovereignty. And this will further reinforce the group's financial profile. We are clearly pivoting the group to be the catalyst for enterprise-wide AI adoption. More to come during the Capital Market Day in May. Thank you for your attention, and I now hand over to Nivi.

Thank you, Ayman, and good morning, everyone. Let me start with the headlines for FY25. We delivered a solid top line at €22,465 million, which is up plus 1.7% on a reported basis and plus 3.4% at constant currency, placing us above the top end of the outlook we upgraded in October. This shows that our growth initiatives put in place over the year yielded results despite a mixed environment. On profitability, we protected the operating margin at 13.3%, stable year-on-year, and in line with the guidance we set. Holding the operating margin despite the challenges we have faced in continental Europe is a proof point that our operating model is more resilient than ever before and shows the continued effectiveness of our cost discipline. Net profit group share ended at €1,601 million with basic EPS at €9.46. Novelized EPS, which strips out the other operating income and expense items, was €12.95 plus 5.8% year-on-year. Finally, we delivered organic free cash flow of €1,949 million in line with the around €1.9 billion target we set at the beginning of the year. a strong testament to our financial discipline and focus. Let me take a moment to talk you now through the shape of the year. Growth rates gradually improved quarter after quarter at constant currency, but also ex-M&A. Underlying growth strengthened further into Q4, and after taking into account a scope impact of around 6.5 points, our constant currency growth reached 10.6%. I am happy to confirm that the organic growth in Q4 was therefore around 4%. To this effect, there is an error on slide 27 of the PAC. Now, reflecting on the acceleration since the beginning of the year, what gives us confidence is that this wasn't a single sector or single region spike. We saw broad-based improvement across all businesses, regions, and sectors. Currency impact was negative at 370 bits, so that's minus 370 bits, in Q4 and minus 170 bits for FY25. Based on current rates, currency headwinds should continue into Q1 2026 at slightly over 4 points and then settle at minus 1 to minus 1.5 points for the full year 2026. In summary, while the demand environment has remained largely unchanged, our current momentum is clearly stronger than it was a year ago. Turning to bookings, this was 24.4 billion euros for the year, with a very solid 7.2 billion euros in Q4. In constant currency, our bookings are up plus 3.9% for the year and plus 9.1% in Q4, which mirrors the improvement in revenue momentum we just discussed. The book-to-bill of 1.21 in the quarter and 1.08 for the year is strong by historical standards, and this reflects two things – We continue to win in clients' new strategic priorities, particularly data and AI, and we've won a higher number of large deals, which brings some added visibility. As Ayman said earlier, our portfolio investments from cloud, data, and AI to digital core, modernization, sovereignty, and intelligent operations continues to show good conversion, which sets us up well for the future. From a sector perspective, The improvement extended into Q4 on a like-for-like basis. This is also visible in manufacturing, which was stable in Q4. This solid performance was complemented by the contribution of WNS and Cloud4C acquisitions, which was mostly visible in the services, financial services, energy and utilities, and consumer goods and retail sectors. Turning now to the full year, again, at constant currency. Financial services and CMT sectors were the most dynamic in 2025, growing plus 9.2% and plus 7.7% respectively. With the exception of manufacturing, which remained slightly negative, all the other sectors boasted low to mid single-digit revenue growth in 2025. Geographically, Q4 showed a step up in underlying trends in our largest regions. North America improved significantly. and rest of Europe returned positive growth. Growth rate improved in France, although still negative, in Q4. The scope impact from WNS and Cloud4C is most visible in North America, United Kingdom and Ireland, and in Asia-Pacific and Latin America. In Q4, this is lifting these regions' already solid growth rates to around 20% on a constant currency basis. For the full year at constant currency, revenues in North America increased by plus 7.3% year-on-year. This has been fueled by continued underlying acceleration throughout the year with strong performance of financial services and to a lesser extent in the DMT and manufacturing sectors. United Kingdom and Ireland region grew plus 10.5% primarily driven by robust underlying momentum, notably in the financial services, DMT and public sectors. France revenues decreased by minus 4.1% in a challenging environment, as illustrated by the persistent weakness of the manufacturing sector and the contraction of the energy utilities and the consumer goods and retail sectors. In the rest of Europe region, revenues declined by minus 0.7%. The good performance of the public sector and the growth in energy utilities and the services sectors were offset by a weak manufacturing sector. Finally, Revenues in the Asia-Pacific and Latin America region grew plus 13.8%, driven by financial services as well as the solid traction in the consumer goods and retail and TMT sectors. On profitability, North America operating margin expanded 40 bits, so that's plus 40 bits to 16.9%, while UK and Ireland held a strong 18%. which is 170 bps below a record 2024, which remains a very healthy level. Operating margin in France stands at 10.9% compared to 10.2% last year. As commented in H1, this improvement has been driven by one-off items. Excluding these one-offs, there has been no improvement in the underlying margin. Asia-Pacific and Latin America was 12.6% at plus 20 bps, and the rest of Europe ended at 11.4% at minus 60 bits. Across our businesses, the Q4 sequential uplift was also visible. Growth rates improved across all business lines on a constant currency basis, but also ex-M&A. Strategy and operations, which is no M&A in fact, improved significantly. This came with some contrast across regions, as we have seen during previous quarters. The other highlight is operations and engineering. Let me unpack this as both WNS and Cloud4C are reported here. Starting with digital BPS, this is clearly the fastest-growing business. We have double-digit growth on a like-for-like basis across both Capgemini and WNS. Cloud services and engineering are also now positive. Moving on to the full year at constant currency, applications and technology grew plus 4.6%. Operations and engineering, plus 4.9%. and strategy and transformation at plus 2.4%. In terms of headcount evolution, headcount closed at 423,400, up 24% year-on-year, and 19% since end of September, primarily reflecting the WNS integration. WNS is also accretive to our offshore leverage. Offshore leverage is moved from 60% in September to 66% at the year-end. This is up plus 8 points year-on-year. Attrition was slightly down to 14.9% on a last 12-month basis before we incorporate WNS data in 2026. Let's now look at the operating margin bridge. Gross margin was 27.1%, down 30 bits year-on-year. This primarily reflects a prolonged soft market in continental Europe. In this context, I would like to point out that our gross margin has been significantly more resilient than in any other previous down cycle. Additionally, in the current demand environment, we have tightened our selling expenses by 20 bits and our GNA by 10 bits. The net result is operating margin stable at 13.3% within the range guided for the year. Moving on to financial results. With the interest expense of the new bonds and lower interest income on cash, we move from a net interest income of 13 million euros last year to a net expense of 30 million euros this year. On income tax, the defective tax rate is down year on year to 24.6% at the back of some non-cash positive one-offs, which I did mention in H1. Now, looking from operating margins, to the bottom line. As anticipated, other operating income and expenses are up year on year at €784 million. The restructuring costs amount to €205 million, in line with our comments in July, and with the acquisition of WNS, our acquisition and integration costs are at €97 million. This takes the operating profit to €2,199 million, which is 9.8% of revenue's down from 10.7% last year given those non-core items. After financial and tax effects previously discussed, group net profit stands at €1,601 million, down 4.2%. Basic EPS is €9.46, down minus 3.7%, while normalized EPS was €12.95, up plus 5.8% year-on-year. On cash generation and capital allocation, we generated €1,949 million of organic free cash flow, stable year-on-year, and in line with our around €1.9 billion target. This year, again, the conversion of our net profit to organic free cash flow is clearly above 1 at 1.2x. In terms of our capital allocation, in 2025, we deployed around 4.9 billion euros, approximately 3.8 billion euros on WNS and C4C, 1.1 billion euros on shareholder returns, which was split between 578 million euros of dividends and 542 million euros of buybacks. The employee shareholder program led to a 0.3 billion euro capital increase, leading to a net outflow of 4.6 billion euros. On the balance sheet, we redeemed the €0.8 billion bond in June and then successfully completed a €4 billion bond issue in September. We closed the year at €5.3 billion of net debt, and as anticipated, the net debt to EBITDA ratio stands at 1.6x, and this compares to 0.7x a year ago, and as a reminder, this was 2.8x post the Altron acquisition. In 2026, as we integrate WNS, we expect limited M&A and will accelerate our buybacks, which is consistent with the €2 billion share buyback program announced in July. On that note, Ayman, I hand back to you.