Teleperformance Ord

Welcome to TP 2025 first half results conference call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the speakers, Thomas McEnbrock, Deputy CEO, and Olivier Rigotti, Deputy CEO and Group CFO. Please go ahead.

Good evening, everybody. Olivier and myself are very happy to be with you this evening and share with you our H1 2025 results and, of course, answer all your questions after the short presentation. Let's deep dive into the presentation and let's have a look at key highlights of our business in the first half of 2025. Olivier will then give a deep dive on our financials for the year. We provide the outlook for 2025 as always, and of course, answer all open questions. How did the first six months of 25 look like? It was a good half year for us. Of course, there were the challenges on the FX side, but overall, we are very pleased with the development in particular in our core services. If you look at the numbers, we really have a story of two tails. On the one hand, as you can see, our core services demonstrated strong growth of almost 3% like for like. And in particular, in our important EMEA APEC region, we have seen revenue like for like growth of almost 5%. In particular interesting, we see an acceleration. As you remember in our Q1 presentation, we were already pleased with the development in our core businesses, and we have demonstrated further growth momentum in Q2. We're working hard on all the AI implementation, and we really see the resiliency of our core business process services. And as you can see, 3.5% growth in Q2 versus 2.3% growth in Q1. We have ramped up new businesses around the world, in particular in EMEA and APAC, and we have improved also our client retention and our existing business with our client. This is really a strong asset for our business in the last six months. On the other hand, as also indicated in our Q1 results, we faced headwinds for our specialized services. As you can see, we have grown in specialized services on a like-for-like basis if we exclude this famous non-renewal of a significant visa application by 3%. If you exclude that, unfortunately, the business has constructed by minus 7% on a like-for-like basis, and as we acquired ZP, 4.2% as reported. This is in particular driven by the environment in the U.S. that has lessened to soften volumes for a language line, and this, of course, impacted our overall numbers. Despite the happens in specialized services, we have grown on a like-for-like business as a group by 1.5%, which leads to a revenue of more than $5.1 billion for the year. On the EBITDA, we see also good development. If you exclude the FX effects on a constant FX basis, we are exactly at the same EBITDA margin than in the first half of 2034 of 13.9%. Of course, on a reported basis, as the euro strengthened against all major currencies, we see a decline by 30 basis points, and Olivier will guide you through the different driver of these businesses. We have further implemented efficiency measures throughout the group. I will give a little bit more details for specialized services to maintain and improve our profitability in our core businesses. And given the FX effects that we've seen, we are also updating our objectives for 25, as you see at the bottom. We do now expect... giving the headbands and specialized services a like-for-like revenue growth at the lower end of the guidance. The EBITDA margin remains at 15% and 15.1% objective, but at constantly fixed currencies, and we're seeing a sustainable net free cash flow before non-recurring items of around $1 billion. Let's dive deeper on the different elements. And as I said, we are particularly pleased with the development of our important core services. And you see here the quarter-over-quarter development of core services with a very nice momentum over the last three quarters, 3.8%, 2.3%, and 3.5%. If you deep dive now and say where does this come from, we see in particular the strong momentum, as I said, in Europe, Middle East, and Asia Pacific, where we've seen growth on a like-for-like basis of close to 6%, 5.7% in Q2. This is a super momentum driven by the strong performance in the UK, the Middle East, APAC, Egypt. I can go on across different industries, really ramping up of new businesses, having strong momentum with existing client relationships, and gives a good prospect for the future. Also, our EBITDA margin for core services has improved by 10 basis points, despite the FX headwinds that I described earlier. On the other hand, unfortunately, and we mentioned this, our capital market stayed in Q1. We're extremely cautious about the development of our specialized services business. Unfortunately, we have seen a further acceleration shrinkage of the growth to almost minus 12% in Q2, which is, of course, impacted by the visa management contract and the volatile business environment for operations in the U.S. If you adjust for that, we're still growing at a low single digit and we have a set of efficiency measures in place to preserve the margins. And as you can see, we have continuously improved the margin after the dip into one and are now at the adjusted level of 28% almost for the first half year. To give you one example on this one for language line. As we anticipated a normal growth momentum for the business at the end of 2024, We have organized and prepared the resources accordingly. Unfortunately, as we said earlier, there was a softening of volume given the special situation in the U.S., and we had to adjust correspondingly our cost base, which, of course, takes some time. And you can see that after this quarter where the costs were sort of not appropriate to the demands that we have seen, we were able to adjust the cost per minute now to even a lower level compared to 24%. and thereby restored the margin for language line in the second quarter. So good progress there, but remain extremely vigilant for the development, and we remain cautious on the recovery of this business in this year. Across the board, and it's also good to see, we see that the growth in our core services is supported across different verticals, whether this is government solution, fast-moving consumer goods, media, entertainment, gaming, retail companies. So you see a bit of a shift. Last year, we saw strong development for our BFSI and automotive clients. In the last six months, we see particular strong momentum across the above-mentioned verticals, which, again, is an indicator of the resiliency of the business. Same is true for the areas where we are growing. This is unchanged. We see, despite all the AI fears, good momentum in our voice and non-voice. And we see particular strong both in our strategic focus areas, on the one hand, back office BPO growing very nicely and strongly, as well as our other targeted services, which are unfortunately here subsumed into other, whether this is data services, technology, consulting, analytics, at a strong growth momentum. Let's look now, after we had a quick overview on the financials, on the strategic highlight that the last six months presented. On the one hand, our strategy. We live in times of change, and we need to be an active driver of this transformation. For that purpose, we have outlined our future forward strategy, our capital markets day in June, with our TPI FAB platform orchestrating AI and human at scale. Our expansion of TPI data services, notably with the acquisition of Agents Only, which is a crowdsourcing platform to have access to this talent for data annotation and eye training work. With our new AI partnerships, M, Apollo and Sanas. Our new AI officer that you got to know at our Capital Markets Day, Anish Mukar. And the strengthening of our capabilities, whether it's IT services, F&A and B2B sales. We believe we need to be agile and focused on the strategy and to execute on the growth momentum we see in these areas. Secondly, yes, we talked about and we saw the headwinds of specialized services, but we strengthened this important pillar of TP also in the last six months. On the one hand, with the successful completion of the acquisition of ZP, that performs very nice in line with the initial plans. The integration program is well on track, and we have with Juan Carlos Sinclair-Pierre, a new CEO for specialized services, driving a lot of closer cooperation between specialized services and the core business. We are also continuing to advance, and we are well ahead in progress with the integration of Majorelle, obviously, with IP. We are also with the above-mentioned approval of the reorganization in France. We got the approval from the French authorities, and we continue to focus on efficiency because we need, on the one hand, to drive the transformation, invest in the business, but on the other hand, ensure efficient delivery and driving efficiency operations to maintain our margin. Lastly, as you know, as a B2B digital service company, it's about people, process, technology, and domain expertise. We continue to invest in all four areas over the last six months, and we will do so in the next six months to strengthen the business. To give you maybe a bit of a flavor, because some of you asked to give a little bit context, I brought this time along our three strategic verticals that you might remember from our future forward strategy, recent wins. So in all three dimensions, growing the core with AI, extending our vertical place by extending the value chain for our clients, offering back office solutions and new service lines, and capturing new opportunities in AI, we saw notable wins over the last six months. Here's just a selection where we continue to drive the transformation of TP and being the transformation partner for our clients. Maybe to pick just a few examples, what is quite exciting, if you look on Grow the Core with AI, we won a very large deal with a global logistic player to deploy not just one AI solution, but a set of AI solutions for scheduling, invoicing, back-office support where we use translation tools, interaction tools, and analytic tools that drive efficiency, but also improve customer satisfaction for the client. And it's really this hybrid approach that made us win that deal. On the extended vertical place, I'm particularly proud we recently met the client. It's a very large U.S. financial service provider that we are selected to support them on their risk management for the mid-market, which is not a core CX operation, but really an extension of our value chain for this. long-standing client, and we're very excited about the future opportunities with them. Another one is on the healthcare segment in the U.S., which is an important market where we do back-office support for broker enrollments, again, an expansion of our value chain. Or thirdly, new opportunities AI. As you might remember from our presentation with Akash Pugalia, we're very excited about our capabilities when it comes to AI data training, and we have secured two important wins for some of our global tech clients on training and supporting foundation model and linguistic labeling work for the AI tools, which are important wins, and we will further invest in that area. Last but not least, for a mid-sized tech company, we want also some IT services deals. So you see the type of services TP provides, the type of extension of our capability is in place and is being executed, and we follow the strategic skip along these three dimensions. Before we go to the financials, an update as usual on our four capability set. People is and remains a core component of our value proposition. We continue to train them. We continue to provide a good working environment for them. And we continue to expand our offering, not just for our normal employees, but also offering on-demand workforce via agents only. We also continue to invest in AI deployment in our core capabilities, so not just offering AI solutions for our clients, but also deploying more and more AI solution in our own operations, whether this is recruitment or quality management. We also, as a highlight, completed more than 250 AI projects in H1. As you might remember, we were at around 80 in the first quarter. And we bring them to life because we are now really in the deployment and in the operational use of AI at scale on our own tools and in our open ecosystem with our partners. One great example on that front is Anna AI. As you can see here on the chart, I have a little deep dive one. As you know, we have a specialist company, PSG, focusing on recruitment services, and recruitment is also a perfect example where it's the blend of human and AI driving better outcome. NAII is an AI-enabled recruiting assist that allows an individual human recruiter to be four times more productive when it comes to hires. that increases the leads through better lead management and screening of CVs and applications and also reduce the wait time for applicants. So a great example of a solution that we offer for clients through PSG, but that we also use internally to improve the efficiency of our own processes. With this quick snapshot overview, I will hand over to my dear colleague, Olivier, who will guide you through the financial numbers.

Thank you, Thomas, and good evening to all. I'm going to give you a much more deep dive information about the first half. It's not a first half easy to read, but I strongly believe it's a solid operational first half, and we are going to see that in detail. If you look to the figures, there are two major points that I just wanted to highlight to start with. There is a solid like-for-like growth in H1 with positive momentum in core service, as mentioned by Thomas a minute ago. And we, of course, we had an impact, ethics impact in this first half, and also volatile microeconomic environment, mainly on LS. This is a two major topic we have to keep in mind. Let's move to much more in detail to have a look to the sales. So if you look the first half, what is interesting is that we have an encouraging commercial momentum, which is coming from, of course, new AI solution. But what is interesting is to see that we have first a big currency effect, 121 million, of which 114 came in Q2. So everything changed in the Q2. Of course, the Euro climbed up versus all the currency. We'll see that in a minute. And that has an effect on our company. Of course, you remember that we bought ZP Better together early this year. So you have the change in scope of consolidation of 89 million. They enter the scope beginning of the year. So the like-for-like growth is 72 million, which is 1.5% like-for-like. This 1.5% like-for-like, this 72 million, are split differently. As mentioned, there was an increase in core, which is significantly higher than the 72, because we are here in a position to deliver 121 million, while we were down by 51 million in specialized series, mostly coming from this new contract that has disappeared in H1. So, to make it simple, negative effect. Hyperinflation impact of 0.3% in Q2, which was, I would say, coming at the very end of the quarter, notably in Argentina and Turkey. I can come back on it later on. It's mostly the fact that the devaluation was higher than the index of price. And, of course, acceleration in cost service, consolidation of ZP, impact of TLS, and an environment in LS, which is not so easy to predict. I just wanted to give you this slide just to show that even all of the concurrency in which we are running, and it's a part of them because we are active in more than 80 or 85 countries, all of them are depreciated versus Euro. This is the first time in my life in TP that I'm seeing that everywhere we have a negative impact from the currency, which has impact on the group. If we look much more in detail in the growth momentum that we were living in this quarter, as Thomas was mentioning, the core service moved by 2.3% to 3.5% in Q2, while the specialized moved from 2.4 to minus 2.4 to minus 11.6. But if you correct from this famous contract, we are at 3.8 in Q1 and 2.2 in Q2. So there are two main takeaways to have here. Of course, service is accelerating, and this is a key question, given the fear that AI was generating. And specialized service, of course, is slower than it was, but still growing. I'm going to give you much more detail by region and by... My quarter, you have the detail here. Of course, there is a growth which is noticeable of close to 6% in Europe in this quarter, while America is back on track, 1.1% again in growth. So at the end of the day, as I told you, CORE and EMEA are back to growth, significant growth, and specialized service specifically should take out this UKVI contract that is specific. is still growing. I know it was a fear for most of you. Let's move now to the margin. The margin has changed. As you can see, the cross-service margin has grown up by 10 basis points, mostly driven by the growth that we've experienced in Europe and in EMEA and Asia-Pacific. While, of course, the specialized series were down by three points, specifically linked to this TLS impact. That's where we move from 13.9 to 13.6. And what is interesting is to have a much more precise view on this margin. What happened, in fact, in this quarter, in this first half? If you look precisely, you have... two major impacts, which are clear. You have the impact that Thomas explained for the Q1 in LLS, where we were facing less demand versus what was scheduled, and it was correctly scheduled, but it cost us 15 basis points in Q1, knowing that starting Q2, we have been able to correct it. TLS and ZP is a wash, if I may say. They are roughly the same amount. And you have a mixed effect on the fact that the specialized service, which is a higher margin, is lower than previous year. These 40 basis points have been covered by operational improvement and operational performance across the board. So, all in all, we have been able to cover this topics that were not totally scheduled, notably LLS and the mix effect, by a better delivery, either in the core service and mostly in the core service. But what happened is that finally, when you take in account the FX effect on the translation effect, I'm not speaking of the transaction effect, I can come back if you are interested later, on the translation effect, just moving, translating the result in Euro, a decrease of 30 basis points that hit us in this first half. I would say after there is few things to say, there is less synergy costs that have been incurred in the first half. It's not really a surprise because we are close at the end of this story and we have been able to improve our operating profit versus last year. What is different is probably the second part of the P&L where we have a decrease of the financial result, which is mainly also due to unfavorable exchange gain and loss that was coming from mainly the Egyptian pound that was very, very favorable last year that is no more existing today. This is mostly non-cash. And you have also an income tax that is a little higher than last year, that will be an improvement versus last year. What is interesting is that if you take out this gain and loss unfavorable, you have a stable net financing cost, despite the fact that we increased our debt basis by 500 million with the bond issues that we did early January. So the average cost of the debt has been decreased by 30 basis points in the first half versus last year. Lastly, to finish, to explain also the difficulty, I would say, to understand what is economically beyond the story, which is the front-loaded outflows we had in 2025 on the cash flow. The cash flow has been hit in 2025 temporarily by different topics. Lower reimbursement of VAT credit that we had in 2024. So not only we get money in 2024, but some money that we are supposed to get in first half will be paid in second half, notably from Greece and India. We are speaking of a wash of $30 to $20 million. We have a full year increase in tax, which is mainly born in H1. There will be an additional cash tax, but it will be mostly most of the cost that's been born in H1. You have, of course, expense related to the cost of energy plants at $20 million and increased cloud subscription and rollout of AI partnerships. And on top of that, in terms of capex, you remember that the capex was planned to be at 2.3%, which is already where we are going to be, which is a $40 million increase versus last year, of which $30 million has been expensed in the first half. So the net free cash flow generation is expected to be significantly improved in H2, and this is a specific situation. If we move now to the debt, Just to show that what happened, we have the net free cash flow. We have dividend and share buyback that has been done in the first half. I'll come back in a minute to that. You have the investment, which is ZP better together, and the investment that we did in AI, I would say, partnership notably, and some non-cash issues that push the debt to 4.4, 82, and we're not surprised. The share program, the share buyback program of 100 million that has been announced in June is mostly completed as we speak, and we continue to have our BBB rating. That's what I wanted to tell, and I'll give back this floor to Thomas to give you a final remark before the question and answer.

Thanks, Olivier, and let's have a look at the outlook. So as you can imagine, Based on the performance, we updated the outlook to reflect sort of the latest development. We do not expect a full recovery of specialized services in the second half of the year. We remain extremely close to the business, watch its performance, but we don't expect that it will rebound different in the development eight years ago. So from that perspective, we see the revenue growth at the lower end of our initial guidance. Secondly, as Olivier explained in detail, we have these massive FX movements, in particular in Q2 of this year. And thereby we want to specify that the EBITDA margin of 15 to 15.1% assumes constant exchange rates. And that we were not so explicit the last time, and thereby we want to be explicit about it, because it's hard to estimate how the euro, dollar, and all the other currency movements will be in the next years. We do expect there are some headwinds for us. And lastly, there's no change. We have this front-loading and some of the cash outflows in this year, but we continue to see a sustainable net cash flow of around 1 billion before the non-recurring items that Olivier laid out. Also, no change in our ambitions for 28, as you've seen at our capital markets day. We see the traction in these new business line and thereby do expect an acceleration of the growth momentum. We continue to see for new more complex services a possibility to expand our margin and that we see after this transformation period over the next three years to be at 15.5 EBITDA margin. And we continue to see in our resilient business model accumulated cash flow generation over the three years of around 3 billion. That having said, we're looking forward to your question and want to announce one change, because for many of you, you have been in contact with our head of investor relations, Queen Yigin, who will leave the company. And we're very pleased to welcome Simon Sachs as our new head of investor relations communications to the team. So in the future, Simon will be your direct contact person for all the kinds of questions you have. And of course, the rest of the management team as well. With that, back to you and to your questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Remy Grenou from Morgan Stanley. Please go ahead.

Good evening, Thomas. Good evening, Olivier. A few questions on my side if I may. The first one is on LLS. So I think you said earlier this year that it was kind of growing, had deteriorated, but was growing in single digits. It seems from the numbers that you're giving today that this might have deteriorated a little bit more in Q2. So if you can make an update on that current trading in LLS and how you're thinking about the second half of the year, you're not guiding for recovery, but equally could there be a deterioration there? So that would be the first topic. The second one is on the acceleration in core services in Europe. So can you maybe provide a bit more detail there on what has driven that and especially the level of margin that these additional volumes are coming at, especially interested in the activity coming in back office and AI data services that you're referring to. And the third one would be, on the guidance, the margin guidance at current effects, at constant effects, sorry, 15 to 15.1%. If we assume that the Forex remains stable compared to where it is today, what would that translate into in terms of reported margin, just to understand the gap between that and what we should expect for the second half?

Let me answer the first two and Olivier can answer the effects on the profitability. On the business development in EMEA and APEC, as you remember, we have invested last year in our business development team, and we have been very strong in our ability to win new contracts, rent new contracts, and grow with existing clients in EMEA and APEC, notably in the fast-moving consumer goods, government sector, some e-commerce clients that we rent. It's a mix of, I would say, Our operation to delivery, like in Egypt or Turkey, strong local business wins in the Middle East. APAC has been far as a good market in terms of revenue contribution in the first half of this year, and also the UK with their delivery locations in South Africa. So the team has really done there a fantastic job across the board of winning, growing new contracts and growing with existing clients in these three sectors. And we've seen also in EMEA APEC the benefits of the synergies. Now, if you remember the chart, let me maybe go into this on the detailed numbers here. you can see really in EMEA APEC, despite some of the FX headwinds, a growth of our EBITDA margin from 9.3% to 9.7%. Yes, there are some challenges in some domestic European markets, as we talked about, but this region, and it's a significant part of our business, is resilient, growing, strong momentum, Africa and the other regions I mentioned, for all operations. So there it's really... It's quite exciting to see. I said some of the challenges we save on the specialized services are compensated by our core business, and EMEA APEC there has a strong component. Americas is a bit mixed pictures. As you know, in our numbers here, we have three big regions part of it, North America, Latin America, Philippines, and India. India continues to be a growth driver for the group, so we're very pleased they were for the development. remains challenging on certain fronts. In Latin America, we see an interesting picture. It was a little bit weaker development last year, but we see a strong development of our domestic businesses, notably Mexico, but also Brazil, for instance. There we have the FX issue, unfortunately. But it's really – you can see it. We win new clients. We extend the services line. It's really encouraging to see. So if you – Peel the onion, adjust for the FX effect. There are some challenges there, in particular in the Americas. India is growing. LATAM is growing domestically as well as in our near and offshore operations. It's quite encouraging to see. Unfortunately, we still have the headwinds in North America. Then there was the question on specialized services. So we don't expect a recovery. Language line in particular, we don't break out the growth rates, but it's growing domestically. It's still growing, but low, low, low single-digit, so to your point. And as you can see, obviously, for H1, we see a reduction of our margin, unfortunately, by a 30 basis point. So the capability, how this year will end, if we're very pleased or pleased or just modest, will depend on our ability to continue the momentum in core services. That's really strong and positive to see. We see the pickup in back office work and how much headwinds we have for specialized services in the second half of the year.

Thank you. Before I move to your question, just be clear that this margin in LLS in Q2 is higher than last year in terms of percentage. So we have been able to monitor that very closely. Of course, the volume is difficult to predict. As far as ethics is concerned, this is, as you understood, it's a complex year. There are three topics that I just wanted to mention. First one, hyperinflation. Frankly, I have no idea where it's going to come. My guess is that it probably will revert in the second part of the year, as often it happens, when the price will adjust with the devaluation or in the other way. That is probably what could happen, but I cannot guarantee it. On the transaction issue, the group has covered mostly all of them. So there is no marginal impact of the transaction because we are covering roughly 3 billion a year, and this was done sufficiently early in the year to cover it. On the translation issue, which is not covered, the impact was 30 at this point as we speak. Today, we believe, based on what I know, what I feel, because there is no certainty, we should be roughly in this range. There is no guarantee. There is no guarantee it could be better, it could be worse, but it depends a lot of the euro versus all the currency. Most of the time, a lot of the currency, I mentioned it earlier on, are somewhere linked to dollar. And when it translates to euro, it has an impact significantly for us.

Other questions? Thank you very much.

The next question comes from Carl Green from RBC Capital Markets. Please go ahead.

Yeah, thank you very much. Good evening to you. Just a couple of questions on specialized services and then a separate question if I can. Just in terms of that development between Q1 and Q2, excluding the TLS contract loss, so excluding that loss, like-by-like growth moves from 3.9% in Q1 to 2.2%, in Q2, given the very big swing in the overall like-for-like growth, can you be a bit more specific about the magnitude of the contract loss in euros, millions in the second quarter, and how should we be thinking about that in the second half? That, I think, seems to be the big gap versus consensus expectations going into this print. The second question around this general specialized services topic is, Given what's happening, are you more inclined to think more deeply about potential divestments? And then the final question, completely unrelated. At the four-year stage, you did move towards giving the market an adjusted EPS metric. I just wondered if you could explain the logic for not providing that on this occasion, given that, you know, there are lots of moving parts below the EBIT A line in terms of tax, which you talked about, FX gains, et cetera. What's the logic there? Thank you.

Olivier, you want to start?

Yeah. Q1, Q2 specialized. So the big impact, as you understood, was CLS, and the total impact in Q3 will be, again, something around 50 million in terms of sales. It's a big impact. The bigger impacts are in Q2 and Q3. It will start to reduce in Q3. I'm not sure we are looking to that as we speak. We are always looking to a possibility of moving any solution for the shareholder. That's it. But today we are much more focused on the delivery than on potential move. As far as EPS metrics, adjusted EPS metrics are not done, it's mostly because it will be done at the year end. It's not done at the first half. We should have done it. We can make it, but this was not something done on purpose specifically.

But maybe to add the point, I do believe, yes, we do see some weakness in our specialized services right now, but these are highly valuable businesses. If you look at reference cases, whether it's in the visa services segment, whether it's in the interpreting segment, in our specialized segment for recruiting solutions that are now NI-enabled, or health advocate that we presented at the Capital Markets Day, I strongly believe these are truly valuable company assets that Yes, there are some headwinds this year, which we manage very closely, but these are valuable assets that if you look at relevant peers have sort of would maintain a high valuation. Thank you. Do you have another question or that's it?

The next question comes from Carl Rainsford from Barenburg. Please go ahead.

Evening, Thomas. Evening, Olivier. Yeah, good to see some solid momentum in the core services. So my question is actually focused elsewhere, I'm afraid, and I've got the three. But the first, just another follow-up on LLS. I'd have thought the LLS trajectory should be sequentially improving even from Q1 to Q2. So how can we gain comfort in specialised services returning to that high single-digit or double-digit growth rate over time? You know, you explained these are valuable assets, but To me, given your commentary, it does sound like there could be a structural growth issue there with LLS, and you've got no real visibility as to growth actually recovering. So it'd be good to know your thoughts there. The second, you note front-loaded outflows regarding free cash flow, but could you please quantify how free cash flow in the second half should be so much stronger to get anywhere close to that $1 billion level? You know, when I look at your slides on – your notes, sorry, on slide 27 – It's not so clear to me. I also note you've removed the guidance for deleveraging this year, which was in place at Q1. So I presume now that you're not even sure about that. So it doesn't exactly give me a ton of confidence you're able to generate that $1 billion of free cash flow. So it would be good to quantify that, please. And lastly, could you again quantify the level of OPEX investment in the first half, please, of that 40 bits operation improvement gain you stated? Yes. is there extra cost investment that offsets the gain, i.e. is the underlying improvement higher than 40 bits and you've invested in the workforce, let's say, which sort of offsets that slightly. That'd be good to know. Thank you.

On LLS, let me start with this and hand over to Olivier. I think you have to distinguish between structural changes in the business and temporary changes in the business. If you are In the U.S. right now, you see that the environment, in particular for people who are seeking the support of a language line which are non-English speakers, are today very difficult. And this is part of the slow growth demand that we see in the business, that there is less demand from these more non-English speaking groups. We don't see a structural shift in language line on the interpreting solution side. The opposite is true. I think it's a very resilient business that despite the situation in the U.S. is still able to grow. So that's why if this would normalize, I don't know when this would be, we do expect this pent-up demand and this normalized demand to be significantly higher as it is today. And it's a non-normal situation that we don't expect to be sustained for the next years. We do, as we want to be cautious, we don't expect a recovery in the next two quarters, but we don't expect that this would structurally shift over the next years.

On the free cash flow, just to be clear, around 1 billion is excluding non-recurring items. You remember that there are 20 million that has been spent in the first half and probably there will be another 50 million that will be spent in the second part of the year linked to the French plans that has been mentioned. But why we are, I would say, so confident? We are, I would say, between brackets, so confident. If you look what happened last year, last year we gained 600 million of cash flow in the second part of the year. Here you have roughly between 110 and 140 million that are, I would say, moving from H2 to H1 versus last year. When you put that together, I'm not saying that it's granted and everything is okay. Of course, we have this non-recurring item that will be impacted cash flows for this year. There might probably have some ethics issue if the dollar continues to slip. But what we know is that there is, as always in this company, a lot of business happening in the second part of the year, a lot of revenue, a lot of cash, a lot of margin that is happening in the second part of the year. So it's not... and probable that we will achieve it. Of course, there are uncertainties, but we are on it and we will be reasonably confident that we will achieve this figure. Again, I just mentioned, there is a cost of this energy plan that will be deducted from this around one billion figure. Third question. Third question. I'm sorry. I'm not sure to have understood it, meaning that whether this 40 basis points will continue in H2. Is that your question? Am I correct?

It was more just, yeah, you've been pointing to OPEX investments into your people, i.e., you know, I guess AI savvy people.

um we had that last year and we have a remaining impact in the first half which is not dramatic but existing uh so we should have less less issues than than we had last year notably in the second part of the year okay thank you just a quick follow-up on the second one on sort of free cash flow sorry just with the

perhaps you've removed deleveraging from your guidance. Should I read into that in any way? Do you expect leverage to go up now?

No, I'm not expecting leverage to go up. What I didn't have at that time is 100 million share buybacks that was planned, so there will be a lower deleveraging. Of course, we are going to deliver to what level exactly, I don't know precisely, but I have to take out to add 100 million debt following the share buyback that we did in July.

And if you have read our press release, and we did actually have our board today, we have a very active discussion what is the best capital allocation for the company in future value creation. We did announce the share buyback that is now completed, the 100 million, and so this needs to be taken into consideration as this was an aspect that is being now deliberated on the board.

But again, in case you will be afraid by debt, I can tell you that the group is totally in control of this debt, have access to liquidity, whether it's short or medium or long term, and we have no issue of financing, clearly.

Understood. Thanks, Olivier. Thanks, Thomas. Other questions?

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Nicole Monyon from UBS. Please go ahead.

Good afternoon. Thanks for taking my question. Sorry to labor the point a little bit around LLS, but if we can go back there. Just on that weakness that you've seen first of all is that something that was deteriorating through the quarter sort of month on month and then maybe in addition how much of that is being driven by I guess you call it the political backdrop in the US and demand and willingness to engage in these services and how much is related to other issues including kind of potential AI overhangs I know you mentioned that the high value interpretation services are still growing I think low single digit which obviously implies that everything else is doing quite a bit worse. So that was the first question.

Thanks. Nicole, your question was on the cash flow or on the development on the revenue side?

On the revenue side, from what I understood, no. Am I correct?

I think really when you talk to the team, there's really a very special situation right now in the U.S. I cannot say it differently. And that has obviously an impact. It's still remarkable to see that they've got their costs under control. There are hundreds of individual measures in place to ensure the efficiency of the business and to maintain the growth momentum that LanguageLine has today. I don't see significant AI impacts in the business today. It is not, that's why I said it's not a structural drive of the business. It's a demand drive on the business, which puts the entire interpreting solution for this special demands in a particular case. So that's why I'm not, that's why I don't see that in the numbers. Yes, you're right. There's some headwinds also in the other specialized services business. But the main impact is for specialized services, really the loss, Of the TLS contract and the headwind versus the normal demand on Language line and as we said earlier the team has prepared for normal double-digit growth That's why they put the resources In place and we had really a lot of measures to do to adjust for the resources accordingly to get the cost under control but if I may had Nicole a

You have to understand that a lot of people who are using our service are afraid to use them, not because they don't need it, because they are afraid to be, I would say, kept by ICE and sent back to Latin America or to Mexico, even if they are, I would say, regular U.S. citizens. The fear is clearly one of the major drivers of this evolution. In U.S., in U.S., of course.

Yeah, that was my question, basically, whether... To what extent?

To what extent is difficult to figure it, but what we get as a message is people... And, you know, we were looking to figure again with Thomas recently. You see the 20th of January, the drop, which starting the 21st of January.

Really, we spent a lot of management time and attention on the development. We see daily reports. on the movements, on the volume. We really have all our eyes on the business. The team of LanguageLine does a fantastic job. I cannot say it differently. Really, it's a super company. They deploy AI in their internal offering, how they develop it. They have a super close and great sales organization. It's an absolute superstar in this segment, but they faced these unusual headwinds this year, and thus we have to weather through. I was hoping we were always expecting a recovery in the second half, which is not happening, as you can see if you watch the news in the U.S. every day. But we see the business is intact, healthy, and ready to grow again when the situation has been normalized.

And these volumes are particularly sensible to what's happening, notably what happened in Los Angeles months and a half ago, or a story like that. So we see a direct link between these two phenomena.

But that's why I really have full trust in the team. Simon, now with JC, they do a fantastic job. And it's a healthy business that has to weather this period through. We support them in any means. We monitor them in any means. But this has, unfortunately, an impact on our business, unfortunately.

On sales, the margin has never been so good in LLS, in percentage.

Other questions?

Thank you. If I could just ask a quick... Yep. If I could just take one second question, just moving to TLS. Sorry if this is quite a basic question in some ways, but could you just clarify a little bit about when the impacts started to come through here and maybe the annual sort of value of the contract you lost? Because you did call out an initial impact on growth from this contract loss, or non-renewal rather, in... in Q4 of last year. And now it seems to be quite choppy through the quarters of this year. Maybe that's some seasonality, I'm not sure. But could you clarify why that is? Because it's quite confusing, I think, from the outside, that there was an impact in Q4, and then obviously an impact in Q1, and then that's actually become significantly more pronounced and Yeah, just trying to understand how you should think about that from here and on. Thank you.

It's a complex situation. When you stop such contract, you remember that TLS was supporting delivery of visa for many, many, many countries for the United Kingdom. So there are some part of the business that have been closed or stopped earlier in Q4 that some of them have continued in Q1 because The government asked us to continue until mid-March for some place. So this is exactly what happened. So a significant part has started to be reduced in Q4. There are still business, I would say, on a comparable basis in Q1, but significantly less, and totally disappeared in Q2.

Great.

Thank you.

Other questions?

The next question comes from Ben Wild from Deutsche Bank. Please go ahead.

Hi, everyone. Thanks for taking my questions. Just a few questions for me. Firstly, away from LLS and specialized services, in the core services business, there's quite a big divergence in growth between the Americas and the EMEA and APAC divisions. Can you just maybe explain the divergence that's happening there because the segments are obviously very geographically diversified in terms of the geographies that they end serving. So any colour on what's happening geographically or whether it's a function of client mix that's resulting in such different growth trajectory for the different sub-components of core services. And then a second question on specialized services, please, and another question on disclosure. Thomas, you mentioned that some of the businesses within specialized services have very high valuation benchmarks in the private and public markets. Are you considering giving more public disclosure on the constituent parts of the specialized services businesses to help us? understand the moving parts within the businesses and maybe to help us value them independently. Thank you.

Yes, we have a discussion, but nothing is being decided and disclosed. But I think if you look at the past as some of the assets within specialized services has been acquired, you can drive your conclusions of the businesses, but these are really And we gave some examples, our capital markets say specialized niche services business that target a specific client demand that have higher margins typically. And I do believe echo a higher valuation that we're currently seeing. So that's just as a note on the business. On your different momentum question, I think it's reflected that the Americas, what I said earlier, a relevant portion of that segment is North America, notably Canada and the U.S. And we've seen a trend for many, many years, but also this year, of moving businesses onshore to offshore location. In the English-speaking world, of course, this is much easier, whether this is India, Philippines, South Africa. And this affects, obviously, the growth rate. That's why when you dissect our America segment in India, Philippines, Latin America, North America, you see a very different growth momentum where India is growing high single digit and the other segments, in particular North America, sees a decline in the top line, which is true not just for us but for the entire industry. and so there's the relative weight.

Maybe just as a quick follow-up. Sure. In terms of that English speaking world and the offshoring dynamic, is there any differing pace of AI disruption happening within the English speaking part of the business versus non-English speaking? And is that something you're seeing, or is it purely an offshoring effect?

No, the beauty of AI, and that's why I say it's, of course, multilingual. So that's why the language barrier doesn't exist with AI. So we have really positive discussions with many clients across the world, and whether you are a French client, German client, Spanish client, U.S. client, every agentic AI hotspot speaks every language. So there's no language barrier as such. and also the willingness to try out things We have many European companies, many Asian companies who are very active discussion with us. We're winning deals based on agentic AI solutions by combining a hybrid offering with AI and human-led BPO together across the board. In fact, we actually had today a very recent discussion with our head of business development and sales in Europe of all the AI deals that he seems. So there's no difference in the dynamic for our U.S. clients versus our European clients. And it's good. Really, we have to embrace AI, and I think it allows us an opportunity to transform this business if we do this very proactively. Maybe a last question. Last question? I don't know if there's something left in the queue.

There are no further questions at this time, so I hand the conference back to Mr. Mackenbrock for any closing comments.

As we stick to this chart, maybe we'll look at it. We really are pleased with the development in our core business. The teams are fantastic job, growing like for like. As you can see here, 3.5% in Q2 is encouraging momentum, and we're really looking forward to continue this momentum in Q3 and Q4. We are closely monitoring the headwinds and specialized services. Also, the other teams really have our full trust in doing a fantastic job. But these are headwinds that need to be managed that we see temporary, but we cannot give you a date for this year if this will end. And we have, of course, on the group level, the FX headwinds that Olivier explained earlier that we continue to monitor closely. But we look with optimism and encouragement to the next phase. five months and one day to then present to you in the meantime our Q3 numbers and then our full year numbers. Thank you for your attention.

Thank you to all and have a great summer.

Have a great summer. Take care. Bye-bye.