Teleperformance Ord

Good day and welcome to Teleperformance 2023 first half result conference call. Today call has been recorded. At this time, I'll now turn the call over to Bhupendra Singh, Deputy CEO of Teleperformance.

Please go ahead, sir. Hello everyone and once again, welcome to the 2023 first half results. And if you're wondering why Olivia is not here, then unfortunately, he tested positive for COVID today. And so I'll try my best to cover for him. So let's start with the first half highlights. Despite a challenging macro environment, we've had a resilient performance in the first half of this year. The like-for-like revenues, excluding the COVID contracts, we've had 7% growth rate this year. The EBITDA margins have gone up by 30 basis points to 20.4%. The EBITDA margin has gone up by 30 basis points again to 14.6%. And the key drivers of this resilient performance in H1 One, we have a diversified client portfolio, and I'll touch upon it in a bit. Second, we've had good growth rates in Europe. At the same time, we've had slowdown in the U.S. market. There has been a strong demand for offshore services, which has had good margin impact, though on top line it has been deflationary. And specialized services continue to expand at a good pace. On the downside, we have seen continued delays in contract signings, especially in the U.S. Coming to some of the non-financial highlights, last month we announced that we've got great place-to-work recognition in 72 countries, which is an increase of eight countries versus last year, and now covers 99 percent of the group's employees. In the last quarter, we have also signed three new agreements with local unions in Colombia, in Romania and in Poland. You will be very pleased to know that the Colombia government has now officially closed this investigation that was initiated in November without a single adverse finding against teleperformance. And we have further strengthened our board of directors with the cooperation of Mr. Kevin New, who is an AI entrepreneur and is a PhD from Harvard. Now let's look at some of the numbers in more detail. So we had revenues in the first half. of 3.96 billion euros, which on a reported basis represents a growth rate of 0.4%, and on a like-for-like basis, a growth rate of 2.2%. But more importantly, excluding the impact of the COVID support lines that we had for governments in Europe, namely Netherlands, UK, France, and Germany, it's a 7% growth rate. EBITDA is now up to 807 million in the first half, which is an improvement of 30 basis points. EBITDA at 577, at 14.6%, and that translates into a net profit of 271 million, which is relatively flat versus last year because of increased interest expenses, and I'll touch upon that again a bit later. This is the revenue bridge between H1 of 2022 and this year. So we had highly unfavorable currency effect, especially in Q2. We had 108 million impact in H1. 96% of that impact was in Q2 because of increased volatility and declines in Colombian peso, Egyptian pound, Argentinian peso, Indian rupees, and the hyperinflation in Turkey. Then we had the 184 million of the discontinued COVID contracts. And these declines were negated by a net organic growth rate of 7% to the tune of 268 million in the first half. And then we had 38 million coming from the PSG acquisition. As I touched upon earlier, one of the primary drivers that we have been able to handle the current macroeconomic challenges is because of our diversified portfolio. As you can see, we are not overly exposed to any particular industry sector or vertical. Healthcare, financial services, and media entertainment are our biggest verticals, but even the biggest vertical, we have only 16% of our overall revenues coming from that. Now let's look at the revenue by business unit and by geographies. So I'll focus on the growth rates, like-for-like growth rates in H1. So core services, we've had overall 5.3% growth rate, excluding the COVID contracts. Within that, if you look at North America and APAC, we've had 0.3% growth rate only. That has been somewhat laggard this year, and that's driven by two things. One, we've seen decline in volumes in some of the traditional high volume generation sectors in the U.S., mainly telecom, technology, and the retail sector. And number two, and that's mainly driven by consumer sentiment, and number two, we have seen an increased trend for offshoring, which has reduced the revenues, though the margin impact is positive. Latam has come at 4.3% growth rate in the first half, and it's a mixed story. We have seen good growth momentum in Colombia and Peru, but we have seen declines in Mexico with a strong peso. EMEA has been very strong, 10.8% growth rate on a like-for-like basis, excluding COVID contracts. And this is driven by good growth rate in the multilingual hubs and in the German market. Specialized services continues to have very good growth momentum, 17.2% in the first half. And this is driven by brisk growth rate in language line solutions and the continued rebound and recovery in TLS post-COVID. Also, I do want to remind everyone that we are coming from a very high base in Q2 of 2023, and some of this base effect will start weaning off in the subsequent quarters. If you look at the EBITDA margins by business unit and geography, overall, as I mentioned earlier, it's a 30 basis point improvements from 14.3% to 14.6%. In the core services and DIBs, we have maintained the EBITDA margin despite losing the significant gross margin from the discontinued COVID contracts. Within that, in North America and APAC, we have seen a 60 basis points improvements driven by increased offshoring. LATAM, the improvements in Colombia and Peru have been somewhat negated by reduction in Mexico. And EMEA, The reduction is largely because of the COVID contracts. Excluding COVID contracts, actually, EMEA has shown an improvement in operating margin. And specialized services, we have seen some reduction in the margin because of tighter labor market for the specialized services staff. But overall, it continues to be very healthy, 28.3% EBITDA margins. So overall, still very healthy, 14.6% and a 30 basis points improvement. So what does it mean in terms of operating profits? So the EBITDA margin of 14.6% or $577 million in the first half. After amortization and accounting for the non-recurring items, it translates into an operating profit of $446 million, which is a 1.8% improvement versus the previous H1 of 2022. And this $446 million of operating profit translates to a net profit of $271 million, which is largely flat versus last year. Two big items there. One, the interest costs have increased by $18 million this year because of higher net debt for the acquisition of PSG, and also the interest rates for the variable component are higher. Income tax, both at an absolute level and also as an effective tax rate level, are lower than last year through better tax management. Cash flow, we had a net free cash flow of $309 million this year, despite the higher interest payments, largely because of better discipline on CapEx. We expect go-forward capex also in the circa 3% of revenue range. So what's the financial position in terms of net debt end of this half on 30th June 2023? It's $2.63 billion. We had net free cash flow of $309 million that we just discussed, and the outflow was largely for dividend and share buyback. With this, we maintain a fairly strong financial structure, which is largely protected against any increases in interest rates, if any. And we maintain our credit rating of BBB with S&P. The average cost of debt is 2.8%, and the average maturity of gross debt is 3.1 years. Coming to 2023 outlook. So we expect the macroeconomic environment to continue to be challenging, and it's driven by three factors. One, we're seeing increased uncertainty Almost every few weeks, we are seeing a different commentary, whether it be a recession, a hard lending, a soft lending, or no recession at all. And that does have a bearing on the psyche and the decision-making of our clients. So we are seeing slowing decision-making, especially in the US. Number two, we have seen fewer launches of new products and services, and that has impacted the volumes. And number three, with the increased efficiency drive, we're also seeing increased offshoring. So we expect headwinds in terms of top line. And accounting for those realities, we have adjusted our revenue growth rate, like for like revenue growth rate, excluding the COVID contracts, to between 6% and 8%. At the same time, we are confirming our EBITDA margin target of 16%, which is a 50 basis points improvement versus last year. And finally, the measure of acquisition continues to be on track, and we hope to close the acquisition in Q4 of this year. Thank you, and now I'm ready for any questions. Thank you.

If you'd like to ask a question, please press star 1 on your telephone keypad. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Simon Ledgeprey from Stifel. Your line is open. Please go ahead.