Teleperformance Ord

Hello and welcome to today's teleperformance call presenting the finalization of the acquisition of Majorelle and the Q3 and first nine months 2023 revenue of the company. My name is Karen, and I will be your coordinator for today's event. Please note this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0, and you will be connected to an operator. I will now hand you over to your host, Danielle Julien, CEO of Teleperformance to begin today's conference. Thank you.

Thank you very much, Karine. So good day and thank you for joining us as we are celebrating at the same time the finalization of Majorelle Acquisition and as we are sharing our first nine months actual results. I'm very excited to share my perspective about Majorelle and what it means for the future of our group, the new teleperformance. Then when I will be done, Olivier is going to present you the numbers, last quarter numbers and the nine months. And Olivier Rigaudi, who is the CFO and the deputy CEO of the group, And then we will answer your question and we will answer as much as we can in the time that we have. And Bhupendra Singh with the other deputy CEO of the group will join us for the Q&A. So next, please. Yes. So the new teleperformance, the new teleperformance with Majorelle. It's all about transformation and performance, of course. First, your group remains the number one global leader in customer experience outsourcing and digital integrated business services. We are going to be roughly half a million of employees And to give you an idea of the integration of the IT, this represents more or less 450 million of IT OPEX per year and more than 6,500 IT specialists. Beside that, we have a team of 3,000 experts in consulting, analytics, digital product, and Six Sigma processing. This is the new teleperformance. What are the key financial for 2023 in aggregated pro forma figures? We are going to be at the revenue level a little bit above 10 billion euros. With an EBITDA that will be a little bit above 2 billion euro. Aggregate free cash flow that should be in the range of the billion. And in fact, our debt level will be versus EBITDA will be in the range of the two multiple. Something important. The cost synergy that we expected have been confirmed and Olivier Rigaudi is going to explain that more in details later on. Very well into the 100 to the 150 million initial range. Last. The new geographical split of our activities is rebalanced with the Americas being 45% of the business, Europe and APAC 44% of the business, and our specialized services 11% of the business. Next, please. What is important today is that teleperformance will be in a leadership position or in a major competitive position, meaning number two or number three, in nine of the top ten markets of the world by GDP. US, China, Germany, India, UK, France, Italy, Brazil, Canada, systematically present in a dominant position or leadership position. Here on the map, you can see in magenta the TP presence and in blue the Majorelle presence. Next, please. What is important? And these are the lessons of the map. First, it's the fact that we are an augmented business leader. augmented by geographies. The acquisition of Majorelle strengthened our position in the German and French speaking market. I always had a lot of respect for Majorelle for their strong performance on these two markets. We scale up our impact presence And in fact, we multiply by two our presence on APAC, giving us a very significant position for a non-Asian business. And we become the largest partner and player in Africa, whether French-speaking Africa or English-speaking Africa. Then the verticals. Again, Majorelle is a very well-run company by talented people with a long experience in business process outsourcing. And this acquisition brings to teleperformance an expertise and a presence in the banking and financial service in Europe. Teleperformance is very present in banking and financial services in the US, in Latin America, in India, but not so much in Europe. This is over. Second, Majorelle has a strong presence in managing end-to-end complex business process for the insurance in Europe. This is also over. an addition to our expertise. And finally, Majorelle has developed a a comprehensive digital platform including social media and omni-channel for the luxury goods industry, specifically on the Chinese market that we intend to develop on other major markets that are not Europe or US but like Brazil or India. We bring also additional expertise. The end-to-end insurance claim management, which is a pretty sophisticated multi-stakeholder process. Different insurance companies have to deal together. You need to deal with the experts. You need to deal with the people who got an accident. And in auto and home property, Majorelle has a strong expertise. Complex middle and back office fulfillment management coming from this story. And specifically for the automotive industry. Of course, the cloud transformation and integration where there is a dedicated force based in Europe and Middle East. a full digital marketing platform for LATAM, and this social media and omnichannel platform for luxury industry in APAC that I was mentioning before. And right now, just to give you a sense of the way we embrace AI, I mean, Gen AI and large language model, together, Téléperformance and Majorelle we have more than 100 Gen AI application in development and combined basis, both for internal purpose and to serve our clients. Next, please. So, you can imagine that I'm extremely proud and thankful to lead such a group of talented people. And in fact, working together, we decided to make it simpler, leaner in terms of organization chart, reducing the layers and getting back to something which is the full PNL accountability by region. We're focusing excellence in delivery, and in innovation. For the core service, Bhupinder Singh, who is deputy CEO and chief transformation officer, lead two major regions, the Americas, where Agustin Grisanti becomes a president, from Alaska to Ushuaia, And the EMEA and APAC, where Thomas McEnbrook, who was the CEO of Majorelle, takes over the region. Of course, we have a significant group of global clients that needs to be managed as one. And our global chief client officer is Miranda Koller, who is a US citizen. On the other side, Scott Klein continued to be the CEO for our specialized services, Terry O'Brien, our global chief legal and compliance officer, and Olivier Rigaudi, deputy CEO and group CFO. Below this line, a large group of top leaders and managers from Majorelle take accountability for many clusters. Next, please. Now, just a quick snapshot on our 2023 revenue. It's a challenging year. Everybody knows that. It's challenging on all the macro, social, politics, business. And this challenging year has defined for the IT industry in Silicon Valley what has been called the year of efficiency and has slowed down many decision process. Still, I'm very proud and happy to report that our revenue like for like are up by plus 6% on the nine months, excluding the one-time COVID business, of course. And our Q3 revenue were up by plus 4% like for like. For the full year 2023, today with the peak season of the Q4, We continue to have for objective to be around plus 6%. Of course, excluding the potential volatility related to countries who have hyperinflation that can have an impact of plus or minus 0.5%. Olivier Rigaudi will give more explanation later on. We continue to target an EBITDA margin around 16%. And we are going to consolidate Majorelle from November 1st, 2023, as 99.9% of the Majorelle shareholder contributed to the operation. My last word in the presentation, and I think it makes sense, is the cash return that we provided to our shareholders that should be around $600 million by the year end 2023, resulting from the dividend that we paid, $227 million, and the share buyback. Today, we are already above $200 million, and we will be probably around the $360 or the $370 million by year end. Yes, correct. Today, with the valuation of teleperformance, we are deeply convinced that the best investment that we can make for our shareholders is to buy teleperformance shares. Thank you very much. And now I'm going to ask... Olivier Rigaudi, our talented chief financial officer, to give you in details the picture of the numbers.

You're on mute, Olivier. Thank you, Daniel. Sorry, I was on mute. Thank you, Daniel. Hi, everyone. I'm going to cover two topics to give you some additional information about the closing of the deal and after to enter the Q3 figure. Let's start with the final deal closing and the next step. I just wanted to remind you some steps that have been achieved and what are the next ones. I remind you that we get the final last green authorization from the Antitrust Authority the 20th of October. At that time, we had two issues, two things that are happening. First, we get finally access to the information that we were not able to get earlier on. I'll come back in a minute to that for the synergy. And secondly, we get the result of the first acceptance period of the deal, which was 98.45. Last Friday, So the 3rd of November, we got the finalization of the second offer where we got 99.91% of the share that was standard in this deal. Next Wednesday, we are going to settle the deal and be finally owner. What will be the next step? We have already started the squeeze out of the company in front of the Luxembourg authority, and I do expect this will be done quickly in the next 15 days or three weeks. While in the meantime, we have asked the Netherlands authorities to delist the company from the Amsterdam Stock Exchange. meaning that probably mid-December we'll be the only shareholder of Majorelle, of a company that will be delisted at all, and where we are going to be owner at 100%. Next slide, please. So what are the additional information I want to give you on the deal? First of all, the acquisition costs are going to be around 20 million, which will be below 1% of the deal value, which I believe is acceptable, more than acceptable. Two new shareholders are going to come. on the list of tele-platform shareholders, of course, the SAM Group and Bestelman, that will own each of them close to 3.6% of our capital starting the 3rd of November. These two shareholders are under a lock-up period of 6, 9, 12 months by 3rd, and it's expected that Mr. Mouley Afidalami, founder of SAM Group, should join the board early 2024. Again, I say again that the consolidation of Majorelle will start from November 1. Next slide, please. So what are the cost synergies today? So cost synergy analysis has been performed by a team, not only dedicated teleperformance, but also a Majorelle team, we call it CLIM team, supported by EY, that work all along this summer to prepare the two things, the synergies, the operating model, and the day one action. And we have shared this information after the antitrust client runs approval, which was done last October. What are the main conclusions of this significant work? First, amount. As mentioned by Daniel, we are well into the 100 to 150 million initial range, and we are reasonably satisfied with that. Secondly, execution calendar, it's going to be executed between 24 and 25, mainly. What will be the cost of this synergy? Around one year cost of synergy. What are the key areas of synergies? There are three of them. Of course, one of the major is the IT. which is split between license, hardware, and procurement. As you mentioned earlier, under Daniel's presentation, there is a lot of IT in our company, and making that is absolutely key. Of course, operation and account management can be, of course, another target for reducing the cost, including the site, but not only. And lastly, mutualization and organization at central level will also generate savings. There is a team that has been set up with people coming from Majorelle and from Teleperformance to follow and to execute this synergy program that we will follow on a regular basis. As far as revenue synergy, it's too early to tell, but what we are clear is that we have not seen this synergy are anticipated. Next slide, and let's move to the Q3 figure. This is a Q3 figure, meaning that we have been able to deliver a 6% like follow-up growth on nine months, excluding COVID, and 4% on Q3. I have two comments, first two comments to make on this figure. The first one is to tell that teleperformance has faced an incredible year in terms of ethics. We are going to see that in a minute, and probably all of you have noticed have not kept that in their mind, because this is a big impact of FX, at least for teleperformance. And the second one is, despite that, probably teleperformance delivers the best performance of the competition in this market. And this is something that I want to come back to later on. Next slide, please. Clearly, Q3 was not an easy one, given the the comparison base we had. We had a 14% growth last year in Q3, and of course, it was difficult to meet this year in this global environment. I just wanted to remind you that the Q4 revenue will be easing with a lag for lag growth, which is a little less than 11% in Q4. Next slide, please. Here is probably something which has to be mentioned. When you look at this figure, you discover that Teleperformance has been able to deliver 345 million life-long growth over nine months. Despite that, we were facing headwinds that amounts to $450 million from currency effect and $200 million from COVID contracts that vanished. So this is the biggest stuff. Out of this 250 million, we have plenty of currencies that slipped this year, starting Q2, but accelerating in Q3. I'm thinking of the Egyptian lira, the USD, the Colombian pesos, or the Indian rupee. So despite these two major negative impacts, we have been able to deliver a growth, which is 345 million in like for life, on which you have to add the changes scope starting November 1, 2022. You remember that we bought PSG, the companies that are recruiting on the way. Why we have been able to deliver such a good performance? Next slide, please. Because of that, we are probably the only company that have such a diversified and balanced portfolio. This is true in vertical, as you can see on the left side of this slide, but it's true also in geographical. So when you mix together both approaches, it means that the group is able to swallow any hits that it might that is beyond its control, that could happen, but this globality across the vertical and across the region helps to be better. Next slide, please. So what happened over the different region? Here we are starting with a figure at a constant exchange rate, comparing the nine months 2022 to the nine months 2023. As you can see, you have, of course, this 200 million COVID impact contract that vanished, and and we had a growth of uh core service and dips which is 4.2 percent and specialized service growing at 17 when you look in detail in each segment you know that us is roughly flat which is due to two singles in the global environment that daniel julian explained a minute ago but also see of showing impact moving a lot of business from u.s domestic to india On the Latin side, where the growth is 2%, this is two things, the same issue about offshoring a part coming from the U.S., plus the impact of the increase of the Mexican pesos that makes this nation less appealing for U.S. corporate. When you look to Europe, it's a very good growth of 10% like for life, $188 million. why close to this in every in every sector it's true in multilingual meaning portugal greece egypt or on the on the lower extended lower level sorry spain and all the growth that we have been able to to sustain notably in germany specialized service is continuing to deliver its fantastic journey with lls language line solution growing very fast and tls resuming from um from the COVID period and from the fact that people were not traveling so much last year. So let's move now to the solidity of the group. Next slide. I do believe there is one thing which is going to be more and more important in the coming months is the solidity of the balance sheet and the depth of the group. Everybody is going to look to the level of the indebtedness, the cost of the indebtedness and the maturity of the indebtedness. When you look at these three point for teleperformance, you see we are absolutely safe. The amount of debt, as mentioned by Daniel a minute ago, or net debt to EBITDA is going to be two, around two, based on 2023 aggregate figures after the acquisition of the share buyback, after the share buyback program that we just mentioned. And if nothing happens, we should be probably able to deliver, to deliver, sorry, the this to a level of 1.5 by year end 2024. So no problem of volume of debt. When it comes to the cost of the debt, today we have also a good situation. The cost of the debt is before acquisition below 3%. And of course, after acquisition is going to climb a little, the 2 billion are going to be paid, as I told you Wednesday, and we will be still below 4.5%, which is acceptable in terms of coverage, largely acceptable. In terms of maturity, we have a maturity which is going to be around four years with no significant repayment before July 2025. As a consequence, as a result, S&P has confirmed a BBB rating with a stable outlook. That means that we have access without difficulty to the market. Beyond that, we are going to continue to have a capex discipline I strongly believe that we are going to run around, to land around 3% of our sales. Of course, the site substitute versus work at home will be, of course, a clear point to reduce our empty site. And we are going to focus our capex on IT, AI, and facility optimization versus work at home, as I told you a minute ago. Next slide, please. So let's move now to the capital allocation strategy. CLE Teleperformance is going to deliver close to 600 million to shareholders by year-end, which is significant when you compare to the cash flow. But it doesn't mean that the group is not looking for M&A at all. Of course, it's going to be much more in specialized service, BPO, ITO, and consulting business. Mid-sized company with strong management and financial and we believe that the best case scenario is to resume in late 2024. Before giving the conclusion to Daniel, I just wanted to come back to the hyperinflation issue, because I'm sure you are going to ask some questions. So next slide, please. What is the story of hyperinflation? The hyperinflation, the principle is to restate financial statements for companies located in countries impacted by hyperinflation. What does it mean? What is the methodology of that? Flow are denominated in local currency, are translated in Euro and adjusted with price evolution under IFRS 29. We have no choice but to do that. What we are using? We are using the CPI published by the local government and currency exchange rate at closing rate. This is beyond control of teleperformance. What is interesting is to say that the restatement is starting, is being made each time starting 1st of January 2023. And the impact of this restatement, the calculation of the cumulative impact value is recognized at the closing date. That means that this restatement may change dramatically from a quarter to another. As an example, I'll give you the impact that we had in Q2. In Q2, we had a negative impact of on the life-valued growth of 0.4 on this adjustment. And in fact, why? Because of two reasons. There is a significant increase in revenue in Turkish and Argentinian activity that has been coupled with significant and sudden currency devaluation, in that case not aligned with CPI, that may lead to slight uncertainty on life-valued growth unrelated to operational performance. It's exactly what happened, if you remember, last year in Argentina, when the currency slid at the very last minute and the CPI was not adjusted, or this first half, when the re-election of Mr. Erdogan in Turkey generated a decrease of the currency while the CPI was not adjusted. That is what I wanted to tell, and I'm going to leave the floor to Daniel to conclude this presentation. Thank you all.