Capgemini SE (CAP) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Capgemini 2022 H1 Results Conference Call. I will now hand over to Mr. Aiman Ezzat, CEO. Sir, please go ahead.

Thank you. Good afternoon, good evening, everyone. Thank you for joining us for this call, and I'm joined today by Carole Ferrand, our CFO; and Olivier Sevillia, our COO. Our strong H1 results really illustrate the relevance of our strategy and market positioning. H1 revenues crossed EUR 10 billion, growing at constant currency by 18.5%. As you can see an acceleration in Q2 at 19.3%. Our bookings are robust, growing at 22% at constant exchange rate with a record H1 book-to-bill of 1.09. And after a very strong Q1, Q2 is again very healthy with the book-to-bill at 1.11, reflecting strong sales dynamics and positioning us for sustained top line growth. I can say the momentum is definitely there. The operating margin at 12.2% is improving by 20 bps in spite of the high salary inflation, sustained investment in talent and offerings and the resurgence of some pre-COVID costs. These were more than compensated by the pricing and higher value-added offering mix that we have in the market. The normalized EPS increased by 36% year-on-year, that's supported by a 50% increase in net profit. And finally, free cash flow is positive in spite of significant working capital increase that was, of course, anticipated, driven notably by strong top line acceleration and a high bonus outflow in the first half. We are clearly well positioned around the strategic needs of our clients and continue to gain market share globally. If you look a bit at the performance by region, it is strong across the board. We have solid double-digit growth in all geographies, businesses and sectors. In Q2, all geographies have either maintained or accelerated their growth rates in spite of a more demanding baseline and minimal impact from acquisitions. This impressive H1 landscape, U.K. reports a remarkable 23% constant currency growth while France posted the strongest acceleration. We also continue to reap the benefits of our expansion plan in Asia Pacific and Latin America, with more than 40% increase in H1, supported by both strong organic growth and targeted acquisitions. All business lines posted double-digit constant currency growth rate. And I have to say the 30% growth in strategy and transformation is a clear indication of our positioning at clients on their most critical priorities. Growth is also broad-based in terms of sectors with Q2 acceleration, notably in Financial Services, Energy activities and services. Now the performance results from the combination of 3 items: First, our clients. They are increasingly relying on technology across the value chain of the company to drive both innovation, operation but also client relationship. This is not any more a cost play, but a growth and profit play. Putting it simply, our services represent an increasing share of clients' investments, and we are capturing through that more large end-to-end transformation deals. We also have a world-class innovative portfolio that's really positioned around our clients' need. Our leadership position in Intelligent Industry, our advanced value proposition in Customer First and our strong positioning enterprise management with an industry focus, meet our clients' expectations. Cloud, Data, AI irrigate everything. These technologies are today at the heart of every business transformation. And this is supported as well by very solid technology partnership, notably with the hyperscalers. Last but not least, our talent. We continue to broaden our talent base, adding an additional 12,000 people in Q2 to cross the 350,000 mark. This is up 22% year-on-year and illustrate our ability to attract, grow and retain the best talent in a still challenging market. We are continuously investing in building and upskilling our people as well as adapting our approach to talent management. The share of women in our employees has continued to increase in H1, and I'm proud to see that we have been awarded several times in recent weeks for our efforts in the area of LGBTQ+ inclusion. Now this combination of strength, meaning strong demand, world-class portfolio and great talent is driving strong top line growth as illustrated by the 15% organic growth in the last 12 months and clearly positions us as a strategic partner of our client CXOs . Now this underlines our confidence for sustained growth in the coming years. Of course, we are closely watching the environment. We do not see any evolution in demand or decision-making at this stage, which means demand remains strong and decision cycles are -- continue to be pretty fast. However, we have the ability to react. Our portfolio is broad and agile. We expect growth to accelerate in sustainability in Energy & Utilities as well as in cybersecurity and sovereignty, where we increased our investments. In addition, we have a strong and upgraded defensive offering around cost reduction, both in outsourcing and consolidation. On the margin side, our agility continues to increase. We can count on higher level of industrialization. We also developed a value-oriented portfolio as opposed to pure capability-driven one, and we will increasingly benefit from the savings and the efficiency of our new normal operating model. We remain convinced that the structural demand for digital transformation will weather a potential downturn. However, with the environment significantly changed, we are committed to demonstrate the ever increasing resilience of the group, and we certainly aim at overperforming again. As I mentioned, sustainability is a strong growth platform for the group. It is being further amplified by the increasing market demand we experienced these days in terms of energy efficiency, circular economy and renewable energy. The portfolio expansion is happening at full speed with strong recognition from analysts. We have today 7 sustainability offerings live. This will double by the end of the year, and we see an appetite for our industry-specific plug-and-play offerings. The business acceleration in H1 was very good, with a lot of traction coming from Europe. Clients in energy, manufacturing and consumer products and retail are leading the way the digital sizes remain still modest but proliferating like digital, 5 years ago. And in this nascent market, we signed every multimillion euro deals in the first half, including a fairly larger one. We are fully committed to sustainability. All our 350,000 employees will be upskilled by mid-2023 through our virtual Sustainability campus. And we are proud of becoming 1 of the first companies in the world to have its net 0 targets validated against the new and more demanding SBTi standards. This is an elevation of our ambitions, and it's supported by initiatives such as our New Energy Command Center in India, which uses digitalization and data to reduce by 20% our energy consumption across all our campuses, and that's a good showcase actually for our clients. We are fully committed to fighting climate change while making a significant business opportunity. Now the strong performance in H1 and the excellent dynamic in Q2 demonstrate the relevance of our strategy and our execution discipline. Based on the strong results and perspectives supported by our bookings pipeline but also the discussion with clients, we are positive about 2022. We are raising our constant revenue growth guidance to 14% to 15% versus 8% to 10% previously, including around 1.5% contribution from acquisition. The low end of the guidance allows for some softness in the environment in Q4. We confirm our operating margin target between 12.9% and 13.1% and our organic free cash flow target above EUR 1.7 billion. Thank you very much for your attention. And I now leave the floor to Olivier, our COO, for an update about clients and markets.

Thank you, Aiman. I am also very proud with our excellent H1 sales and revenue growth and also of our promising pipeline. We are definitively reaping the benefits of our clear go-to-market strategy, which is now delivering at full speed. We presented to you this focused go-to-market strategy during the Capital Markets Day last year. What are we doing? Within each of the sectors listed here with selected industries in which we build distinctive capabilities and offerings. For each of those industries, we have also selected priority iconic clients with the ambition to become their strategic partner not only in volume, although we track that as well, but also in relevance and intimacy across the CXO level. With these clients, we are proactively shaping large end-to-end transformation deals to deliver impactful business value, supporting their growth, cost takeout or innovation agendas. Both landmark references then fuel our expansion throughout each selected industry. For the group, this results in an increasing number of large clients, in higher win rates, in greater resilience and further industry relevance. We see strong results on a promising pipeline across all of our priorities which confirms the relevance of our positioning, as Aiman said, more specifically, I would like to call out expected good news. We clearly see that when we combine our digital and engineering capabilities to deliver our unique intelligent industry value proposition, it's a real hit in Europe, of course, and even more so in the U.S. Our momentum is visible in all our sectors with double-digit growth in nearly all of them. Let me call out a couple. In manufacturing, would it be the automotive industry, aerospace and defense industry or life sciences industry, clearly, it's the largest contributor to our top line acceleration in H1. Financial Services also accelerated throughout H1, notably led by North America. And Consumer Goods and Retail proved to be very dynamic across all regions. I would like also to comment a few examples of this, which demonstrates how we deliver strong business value to our clients across all of our priorities. I would like to call out 3 of them to illustrate the relevance of our value position. First, Fresenius. We have signed a multiyear cloud transformation and outsourcing deal with this leading life sciences company. This 1 is a multi-hundred million euro Second, for U.K. Bank at the crossroads of our data and sustainability offerings, we were selected to participate in the development and management of an ESG data store to measure and track financed CO2 emissions. This is, of course, a strategic project with high visibility at the C suite. Finally, an intelligent industry emblematic example for Tier 1 automotive supplier in North America. This large multiyear deal is focused on the development and testing of a digital cockpit system, which is a strategic priority for these clients. Here again, our engineering capabilities, coupled with a strong expertise in automotive and digital were instrumental to winning business. In summary, our focused go-to-market strategy is delivering strongly and looking at our sales pipeline, this virtuous cycle should go up. Thank you very much for your attention. And now I leave the floor to Carole Ferrand CFO, to go through our detailed financial results.

Thank you, Olivier, and good evening or good afternoon, everyone. Let me now walk you through the financial highlights of our H1 results. Group revenues reached EUR 10.688 billion in H1, a reported growth of 22.7% and 18.5% at constant currency. Our operating margin stands at EUR 1.301 billion or 12.2% of revenues, up by 20 basis points year-on-year. After the other operating expenses, financial and tax expenses, which I will further comment in a moment, the net profit for H1 reached EUR 667 million, up 50% year-on-year. The normalized EPS as adjusted for transitional tax impact, which is EUR 5.03, up 29% year-on-year. Finally, we delivered in H1 a solid organic free cash flow of EUR 193 million, in line with our road map for the full year. Let's have a look now at our quarterly revenues. Organic growth reached 18.1% in Q2, a further acceleration on the Q1, which was already strong. This brings our H1 organic growth to 17.2%. Taking into account the group scope impact, the constant currency growth reached 19.3% in Q2 and 18.5% in the first half. FX remained a strong tailwind this quarter, leading to a 4.2 point positive impact overall in H1 due to the strengthening of most currencies against the euro. Finally, our reported growth in Q2 and H1 reached 24.4% and 22.7%, respectively. For the full year 2022, the M&A should contribute to around 1.5 points to our growth, while we expect FX to represent a tailwind possibly approaching 4 points. Moving on to revenues by regions. All group regions reported strong double-digit constant currency growth rate in H1 2022, confirming the acceleration already observed in the first quarter. This growth was fueled by strong momentum in almost all the group sectors, as already explained by Olivier. More specifically at constant currencies, the United Kingdom and Ireland region posted remarkable growth of 22.7% at constant exchange rates, boosted by a strong public sector but also by this consumer goods and retail and energy and utility sectors, which were very dynamic. The North America and Europe regions grew by 16.8% and 16.9%, respectively. Here again, sector traction was broad-based notably to the manufacturing sector better so financial services in North America and consumer goods and retail in Rest of Europe. France reported revenue growth of 12.8%, thanks notably to a robust momentum in the manufacturing and consumer goods and retail section. Lastly, revenues in the Asia Pacific and Latin America region increased sharply by 41.5%. The contribution of group acquisition in 2021 came on top of a strong organic momentum, notably in the manufacturing and financial services sector. Considering now revenues by business line. All group business lines also reported robust double-digit constant currency growth rate in H1 2022. Both Strategy and Transformation and Application and Technology Services continued to benefit from broad-based demand for digital transformation, posting growth in total revenue of 29.7% and 21.1%, respectively. Operations and Engineering Services, 29% of group revenues grew at 13.4%, reflecting strong growth in engineering services as well as in cloud infrastructure services. Moving now to the headcount evolution. Our total headcount reached 352,100 employees at the end of H1, up 22% year-on-year. The offshore leverage reached 59% at the end of June, up by 3 points year-on-year with visible progress in Continental Europe. Finally, the last 12 months attrition reached 27% in H1. However, quarterly attrition rates have now stabilized over the last 3 quarters. So it should become visible into the reported last 12-month figures sometime in H2. Now moving to our operating margin by regions. In North America, our operating margin is slightly down by 20 basis points year-on-year, but still very above group average. The operating margin of U.K. and Ireland reached a record level of 18.4% in H1 compared to 17.6% a year earlier. The rest of Europe region reported a lower operating margin compared to the same period last year at 9.8% versus 11.5% on the back of some nonrecurring items. The Latin America and Asia Pacific region is also experiencing a lower operating margin than in H1 last year, down to 9.7% versus 12.5%. Lastly, I'm pleased to report that France delivered a marked improvement of its operating margin, which rose by only 10 basis points. Our additional investments in sales and marketing are more than compensated by the operating leverage on the G&A. Overall, the operating margin increased by 20 basis points in H1, which is consistent with the 0 to 20 basis point improvements targeted for the full year. Moving on to the next slide. Net financial expenses are noticeably down to EUR 71 million in H1 2022 compared to EUR 85 million for the same period last year. Income tax expenses increased from EUR 382 million in H1 last year to EUR 327 million in H1 2022. This amount includes exceptional tax expenses for EUR 29 million compared to EUR 56 million last year. Setting aside the transitional item, our effective tax rate is down to 29.9%, in line with what should be our normal ETI in the medium term. Let's now turn to the recap of our P&L from the operating margin to the net income. The other operating income and expenses are almost stable year-on-year at EUR 333 million, Our operating profit is up by 32% to EUR 1.68 billion or 10% of our revenues. After financial expenses and taxes, our net profit amounts to EUR 667 million, up 50% from the same period last year. Consequently, the basic EPS stands at EUR 3.91, up 49% year-on-year. The normalized EPS is up 29% to EUR 5.03, excluding the exceptional tax expenses previously discussed. Finally, a word on the evolution of our organic free cash flow and net debt. In H1, this year, we have 2 specific working capital items at play. First, as discussed in last February, the reverse effect of the big positive impact we had in fiscal year '21. Second, the additional working capital required by our record '23 reported growth. Therefore, our H1 underlying free cash flow, which stands at around EUR 50 million, excluding our factoring program is a strong achievement, which supports our full year outlook of EUR 1.7 billion. We closed a limited number of M&A transaction in H1, leading to a net cash outflow of EUR 34 million. Return to shareholders reached EUR 926 million in H1, of which EUR 409 million for 2021 dividend and EUR 517 million for share buybacks. Given the seasonability of our cash flow generation, our net debt stands at EUR 4.1 billion at the end of H1 compared to EUR 4.8 billion a year ago and EUR 3.2 billion at the end of 2021. Aiman, back to you for some closing remarks.

Thank you, Carole. So these strong H1 results really illustrate the relevance of our strategy and market positioning supported by structural demand for digital transformation. Thanks to our unique combination of trends, discipline in execution and agility, we are resilient and confident for the future. We are raising our growth target while confirming our operating margin and free cash flow outlook. So thank you very much for your attention. And now I'm happy to answer some of your questions. I would ask that you keep it to 1 question, please, and then 1 follow-up to allow as many participants as possible to ask questions. Operator, would you please provide instructions for the Q&A.

[Operator Instructions] The first question comes from Mohammed Moawalla from Goldman Sachs.

Good afternoon. Good evening, Aiman, Carole and Olivier. And congrats on the strong results. I'll stick to the -- your request and ask 1 question. When I look at this organic growth in this quarter, it is now very close to what Accenture was doing. I think it's around about 20%. This is obviously multiples of where the industry is growing. So when you think forward, and obviously, you're still investing to grow, how should we think of sort of Capgemini in sort of the economic slowdown that people are talking about? You've talked about the kind of resiliency. But in the past, organic growth has returned negative, but the trend line, you're growing far above the trend line. How should we think about the resilience of this growth and more importantly, the sustainability. If you could walk us through some of the factors that would be great.

Sure. Listen, I think the growth is much more resilient. I think it's important to remember if I go 10 years ago, 90% was probably driven by the CIO. Today, we work across the value chain. This year, you see more as potentially a cost center sometimes. So in the case of a downturn, there might be more of a squeeze there, but a lot of our revenues generated outside of that. And I do believe there'll be a lot more resilience. And I do believe we'll continue to grow positively in a downturn. If it's very pronounced for many years, it's a different story. But for me, a downturn like we would expect for the moment, we continue to -- we expect to continue to grow from a top line. Why? Because it's broad-based demand. in terms of technology services. The fact that we have an increasing percentage of investment of company, which is going to technology, and we are well positioned to take a big market share of that as you see today. So that gives us a lot more confidence. And I think we are part of the answer. We're starting from a much higher top line. So when we slow down, I think will remain positive.

And if I could follow up in positive. You obviously have your kind of midterm growth guidance. I mean, would it be fair to say that it would be meaningful, not meaningfully off that sort of midterm objective?

Again, sorry, can you repeat?

7% to 9% midterm guidance, do you think and in terms of 5% to 7%, I think, on an organic basis, do you think that, that's sort of a reasonable proxy in terms of being able to kind of deliver within that, even observing kind of economic slowdown?

No. I mean, first, I'll just clarify for me, the 7% to 9% as we put a midterm guidance is in constant currency. It was not set as organic, but I understand the fact that we try to push it to organic now. No, listen, I would not give a number at this stage. I think in a downturn, yes, we could probably be at the bottom end of that depending on how high the downturn is.

Thank you. Thank you.

The next question comes from Varun Rajwanshi JPMorgan.

You talked about increasing your market share. Can you just comment on which areas you're gaining share? And who are you winning against?

I think we're winning against competition. I cannot tell you which is all the competition. We compete with everybody. So if you're gaining market share overall, we're growing fast. We're not the only 1 to grow fast. But if you look compared to the overall market, we are growing much faster than the market and we have to be gaining market share. From where we're winning in, I think we're winning with our value proposition. We're winning an intelligent industry. We're winning on the customer front end with our offering driven by fog-round innovation . We bring enterprise management. We have very advanced and global offering around things like the SAP S/4 core management. We are very good at it. And I think we are today deploying very large programs globally. We're gaining market share around data. Our data business is growing at 40% in the first half. Cloud and cloud-driven transformation is also growing extremely fast. So we have the positioning from a technology and business offerings to really help our clients drive the digital transformation. And that's -- so a lot of it is new, it's not just about traditional offerings, a lot of new areas in which we are working.

And if I can just follow up on the overall demand environment. Even previously, you talked about tracking leading indicators as a gauge for the overall demand environment. Can you provide us an update on where we are today with these leading indicators such as decision cycles, development of sales pipeline, et cetera?

I'll let Olivier answer this one.

Yes, yes. But of course, we are scrutinizing tightly those decision cycles elements. And frankly, and we've been doing that since the COVID era every quarter. And frankly, we don't see any difference at this point, meaning the decision cycles look at our Q2 closing. I mean our Q2 closing was extremely strong. And fortunately, clients decided on time. So we don't see a change there. If I compare to the last quarters, we don't see a change at this point.

No change in demand. You can see the traction on our strategy and transformation, which is 1 of the leading indicators. And to frame the forecast, we look at it at Q3, and the rest of the year looks extremely strong still. And the pipeline is good. Pipeline is very good with still a lot of deals, which will be on the decision in Q3.

The next question comes from Laurent Daure from Kepler Cheuvreux.

Congratulation on my hand as well. My question is also on the visibility you have for the rest of the year, I mean, your guidance is implying roughly a 10% organic growth, I think, for the second part of the year. Another way to look at it is would be the ongoing contract and the bookings you already have. How much of this target is already covered? And how is it comparing to last year? And then I have a follow-up.

Listen, I mean, we feel comfortable about the thing about our forecasting and our anticipation is pretty good. So we have pretty good visibility for me on the second half of the year. I think our teams are quite confident. And as I said, the guidance overall does allow for some softness in Q4. As you imagine, we have a pretty good handle on our Q3. And we have some room for softness in Q4. But right now, we're extremely comfortable.

Okay. And the follow-up is on the gross margin ambition, I think on the longer term, the idea is still to increase it further. It was pretty stable in the first half. Do you think you will start to see some improvement in the second part of the year? Or do we have to wait a little bit more longer.

First, we'll stick to the yearly guidance on the overall operating margin. Of course, we will continue to try to attempt to improve -- improve the gross margin. As you know, this is going to be our biggest pocket in terms of improvement over the coming years, and we're quite confident that the gross margin will continue to increase. Today, we have to absorb some of the additional costs from a talent, from recruitment and a very fast ramp up. So I'm quite confident about the potential for improvement of the gross margin over time.

To add maybe on that, Laurent as well. As you can see, our price and mix strategy is more than offsetting significant higher compensation costs so as Aiman mentioned, after taking into account the return of some costs like travel, the gross margin is only down by 10 basis points.

The next question comes from Stefan Slowinski from BNP Paribas.

Thank you and good evening. Olivier, congrats as well on another strong quarter. But as you know, we're always looking for more. So just wondering on the margin front, considering in the past, you've said the biggest driver of margin really is the top line. I'm just wondering why you haven't been able to see more operating leverage to increase the full year margin guidance considering the big step-up in the full year revenue growth guidance?

First, I would like to correct myself if I ever say that. I don't think I said the -- that the bigger drivers of margin is the top line, top line health because part of operating leverage, but at the same time, you have to take into account the fact that we have pretty high salary inflation that we have to deal with in the current environment. And I think if you look at a number of our large competitors, a number of them have seen pretty big erosion year-on-year in the operating margin. So I think our performance is pretty good on the on that front. And the fact that we have been able to resist in the current environment with some of the COVID costs coming back and some of the high salary inflation shows we're actually able to increase prices and we're able to go further up in terms of value. If not, we have seen an erosion in margin. So I remain pretty confident around the trajectory on the margin and the fact that bit by bit as some of these factors that have been kind of preventing a bit the acceleration of the margin start to fade away, the margin acceleration will come back.

Understood. And just a follow-up there around that kind of hiring market and wage inflation. Obviously, yes, some others have seen that pressure. Just wondering if that's starting to cool. We've seen a lot of tech companies slowing hiring or even announcing layoffs, and I know that's maybe not the direct competition for you in terms of hiring, but are you already starting to see that the hiring is getting easier, and there's not as much pressure on wages as there was, let's say, 3 months ago?

Listen, we are able to see the people, we have to hire the people that we want. There is still a higher level of attrition than we would like. It's starting to come down. I think it will take a few quarters for it to be really cool off. But we are confident that the trajectory is in the right direction from that perspective. But the high level of demand in the market overall is still there. So we're still a challenging market on the talent for probably for the foreseeable future. But we have a very strong brand. Our ability to attract is extremely good. We're really able to attract very top talent and as I said, we expect things to cool off a bit by bit.

The next question comes from Adam Wood from Morgan Stanley.

Also congratulations from me on such a strong quarter. My question is just around the cycle because it feels an unusual 1 that you're obviously seeing this incredibly strong demand in the market and hiring very aggressively to manage the attrition and to manage the demand that you have. And at the same time, we're all talking about slowdown next year. One of the ways I think you manage margins in the past is to try to pre-empt those slowdowns and calm things down ahead of time. Could you just talk a little bit about how you think about that as we look into the second half of the year, balancing that need for investment versus trying to manage and pre-empt what could happen next year, and how quickly you can respond to it, please?

Listen, I think we have a pretty high level of agility as I tried to explain a bit earlier. We have a lot of levers to work on today. First, our level of industrial is extremely high with a high leverage so it gives us a lot of flexibility around the resources. Remember as well with the attrition that we embark that is still pretty high. We can flex quite a bit, our resource pool as we see slowdown coming, if we see it coming for the month, we don't. And we have levers in terms of optimization of utilization. When you're growing very fast, you're investing a lot around talent, around recruitment, around training, around shadowing on contracts. So I think we have quite a few levers that makes me quite comfortable about the resilience of the margin in the downturn. So we're not going to over anticipate. I'm not going to kill the growth. If we grow see growth by basically stopping recruitment, I don't think it would be wise. But on the other side, we are -- we have very detailed basically information coming up to see if there is a slowdown coming and when we need to start putting the tap on recruitment. But I have to say for the moment, we don't see these signs, but we know how to react quickly if they start to come.

That's helpful. And maybe just a quick follow-up. You mentioned utilization rates, they've come down a little bit. I guess that's just a combination of the high attrition and the pace of hiring. Is there anything else I'm missing on utilization there?

No, no. I mean, this is it. Of course, when you have a bit -- if things are a little bit slower, you're able to optimize more utilization. But right now, if you want to fuel the growth that we have, you have to hire a lot, and you have to train a lot and you have -- and that takes transition time and shadowing on contracts, et cetera. That, of course, will drop utilization. But that's what helping you fuel such high growth.

The next question comes from Amit Harchandani from Citi.

Thank you. Good afternoon, good evening. Amit Harchandani from Citi and a question and then a follow-up, if I may. My question goes to the pace of headcount addition that we have seen from your side and how that correlates with the level of organic growth? You have done 20% year-on-year headcount growth last year. That's accelerated to 22% in the first half of this year. And against that, of course, you are not telling us around 12.5% to 13.5% organic growth for this year. Is it fair for us to assume that as we look at the pace of headcount growth in H1, we could expect a similarish pace and maybe a smaller slowdown going into H2 then bodes very positively in terms of how we think about organic growth potentially, again, double-digit ballpark going into next year. So if you could talk about the correlation between headcount and organic growth? And I have a follow-up.

Yes. So there is 1 thing. There's 1 thing that we shouldn't miss in the headcount, headcount is volume. You also have to look at what the growth is. So we have higher growth in offshore. So you're seeing the leverage continues to increase. And of course, the mix of revenue changes as you increase the offshore mix in terms of revenue per headcount. So that definitely makes it a bit the correlation between headcount growth and revenue growth. As you know, I did state when we did the full year result that expect headcount growth to grow by 10% this year. I definitely was wrong. So I'm not going to go into that [ root ] again to try to predict what would be kind of a pace of headcount growth. But right now, we continue to recruit because we continue to see the growth right now. Of course, what we have embarked with us is to help us deliver our H2, and we will continue to basically grow headcount at the pace where we see the demand coming and the potential growth. but we'll fine tune that. I mean, to be frank, it's almost weekly or monthly fine-tuning depending on which operation it is in terms of the plan of headcount. And that's really linked to what we see in terms of growth. It's difficult to give a forecast on this.

And as a follow-up, if I may, you have raised your revenue guidance, kept the margin guidance unchanged, which implies greater EBIT or operating profit and currency is turning to be a bit of a tailwind. So what stops you then from raising the free cash flow guidance? Because mathematically, it does seem that you should probably be trending above 1,800 instead of 1,700

On that point, Amit, it's really the funding of the growth. So as you have seen already in H1, it's a good problem to have, of course, but having some working capital needs because of the 23% increase of our reported growth is a nice problem to have.

Yes. I think I'd add to that, and Olivier maybe can testify to that as well. They start to be a little bit more tension on the cash with clients than it was 12 months ago when the rates were negative. So we cannot ignore that, and we are careful -- be careful on that front. It's nothing dramatic, but definitely, there's a bit more tension.

Thank you for the insights.

The next question comes from Charlie (sic) [ Charles ] Brennan from Jefferies.

Congratulations from me. It's obviously a great set of numbers. There have been a number of high-level questions. So I'll try a couple of detailed financial ones, if I can. Firstly, I don't think I can ever remember CAP calling out receivables factoring on a results call before. Can you just size the magnitude of your factoring program in H1 relative to last year? And how you expect that to evolve in the second half? And given the strength of your balance sheet, why did you feel the need to do factoring? And then secondly, if I look at the detail of the cost breakdown, it looks like higher travel costs of broadly been paid for by flat depreciation. Can you just explain why depreciation is flat given the growth in the business?

So on the first point, factoring is relatively a lower level of amount given the size and the materiality at group level. So it's really a very low level of factoring. And we have always disclosed the amount of factoring in our financial station. So that's not an exception. And anyway, I mean, it's not going to increase anyhow when we don't do any improvement midterm of our cash flow conversions with factoring. That's Not what we intend to do. And EUR 150 million is really a good deal in this context. It's something quite natural and very insignificant with the level and the size of... So on higher travel costs, indeed, travel costs have moved up to 1% of revenues, which is up 1.5% compared to the same period last year. And prior to pre-COVID level, it was 4%. And we don't expect any further impact of travel on our operating margin in 2023. But that's true, the return of some travel cost this year. as expected, and we disclosed that at the beginning of the year, the return of some travel cost.

And on depreciation, we don't have a lot of things. I mean, we're not currently with limited return to office. We're not expanding office space. We're not in the -- so that's 1 of the reasons that you don't see an increase around some of the depreciation items.

That makes sense.

The next question comes from Frederic Boulan from Bank of America.

Just trying to see whether overall, it's hard to pick any holes in terms of demand for the sector. But do you see any change in demand from companies, any type of project that are required versus what was on the road map 12 months ago? And any particular industries where you do anticipate a bit more pressure than others. And then I've got a quick follow-up.

Listen, I mean, be honest, we ask ourselves, the same question you asked, right? We try to reach through the [ lease ] to try to see if we can find something that -- and we really don't see it. I mean, look at the consumer packaged goods, retail and distribution is growing at above 20%. It's consumer sensitive. You could expect that it will start to slow down. We don't see -- look at the manufacturing sector. I mean, we have a huge recovery in aerospace. Automotive is growing above double digit, where you could say no with production. Why? Because you have to remember, there's an increasing amount of investment going into technology. So even if some companies are slowing down, the spend on technology is an increasing part of their cost base in a certain way. They spend more in technology than on other things. So this is growing at the same time that other things might be slowing down, but it's not in technology that the spend is being cut. So that's why I believe we don't see any movement for the moment. And [ frankly ], I've read a number of CEO surveys, which talk more about how to invest more around digital and technology, not how they're going to cut it. Because today, it's a huge driver for the top line for the relationship with clients for developing new products. And we get involved more and more with our clients on how we're going to enable them, actually create more value and sell more to their clients and improve their value proposition. So we have the front end of how they're going to increase profit and growth. And that's why I see we continue to see that increasing the demand and depth across sectors.

Great. Thank you Aiman. And then a very quick 1 for Carole. After the EUR 800 million working cap negative in H1, what should we assume going for what did you embedded in your EUR 1.7 billion guidance for the year, cash guidance.

We have indeed EUR 800 million negative impact of working capital in H1, but this compares to EUR 500 million for the H1, the prior pre-COVID years. And if you recall, well, with only EUR 133 million in H1 last year, 2021 was a clear outlier as we discussed back in February this year. So -- and this is linked to 2 elements that we described. One is the reverse impact of the -- related to the employee bonuses. And the second is the additional working capital required by our groups, our great growth.

Definitely, the seasonality of cash flow will play again here because the working cap tends to improve in H2. Okay.

The next question comes from Michael Briest from UBS.

Good evening and my congratulations. Just in terms of the margin profile, I can't recall such a wide variance in trends by region for some time. And Aiman, I think you said offshore adoption is growing in Europe, but the sort of rest of Europe margins down nearly 200 basis points in France is up 300-odd. So can you talk a bit about what's driving that divergence of margin trends?

So if you indeed, if you take the uplift of the margin in France, it's a factory at more than 3 points on the back of several elements to beat the recovery of some sectors that were mostly affected during the COVID crisis. So it's the pace of recovery is doing very well. On the rest of Europe front, it's only due to some nonrecurring items. So no specific underlying trend there. So I think to say on the underlying trends in the rest of Europe regions.

Yes, I'm not going to waste my follow-up on what were those underlying or nonrecurring items. But can you say something then, Aiman, look, with most of your peers, they've either raised their revenue guidance and missed on margins or they've missed on revenues and rates, kept margins. You've managed to keep margin guidance and raise the top line. So what's different about CAP? And maybe this is something about the history of the company, more European, less offshore, mix of business. I don't know, but can you say why you think you're seeing executing, frankly, better than the competition?

I think it's something. I think we have been anticipating some of that, and we have been able to manage them. Probably the mix of what the cost base is might be playing into that, definitely. And we have a number of levers. We did expose a number of levers at the CMD and we're applying them. So we work very hard, and I've been working many years on the margin very hard, and it's a bit after bit after bit after a bit. And that's really what is increasing more and more our resilience. We know very well our economic model, where the levers are, how to act on them. And we have, I think, very high execution discipline in the firm, and that has created the culture of really fighting for every penny of margin. I told you we pushed on prices. We pushed on the value of the offerings to get out of the commodity space and is paying off. Paying off in better pricing, and we're able to maintain our sole client margin or even increase them a little bit. We show that the quality of the portfolio is very good, even in an environment like that. Thank you, Michael, and that was the last question. Thank you very much all, and we probably talk to you in the coming days, weeks or -- thank you very much, and have a great afternoon or great evening.

Bye-bye.

Hi. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.