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.