Earnings call transcript: Capgemini Q2 2025 reveals EPS miss, stock rises

Capgemini (CAP.PA) reported its Q2 2025 earnings, revealing a mixed performance. The company’s earnings per share (EPS) fell short of forecasts, posting 0.32 against an expected 0.38, a surprise drop of 15.79%. Despite this, Capgemini’s revenue slightly exceeded expectations, reaching €11,107 million, up 0.2% year-on-year at constant currency. Following the earnings release, Capgemini’s stock rose by 6%, reaching €13.03, indicating positive market sentiment driven by strategic advancements in AI and cloud services. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculations, with a healthy financial score of 2.79 out of 5.

Key Takeaways

• Capgemini reported an EPS of 0.32, missing the forecast by 15.79%.
• Revenue slightly exceeded expectations, reaching €11,107 million.
• Stock price increased by 6% post-earnings, indicating positive investor sentiment.
• Strategic advancements in AI and cloud services are driving growth.
• Restructuring costs increased significantly, impacting net profit.

Company Performance

Capgemini’s overall performance in Q2 2025 was mixed. The company managed to grow its revenue slightly, reflecting positive traction in its strategic initiatives, particularly in AI and cloud services. The significant miss in EPS highlights challenges in cost management and profitability, though the company maintains a strong P/E ratio of 13.65 and an impressive gross profit margin of 27.39%. Compared to previous quarters, the company’s focus on expanding its AI-first portfolio and securing strategic contracts has positioned it well in high-growth sectors. For deeper insights into Capgemini’s valuation metrics and growth potential, InvestingPro subscribers can access comprehensive financial health scores and additional ProTips.

Financial Highlights

• Revenue: €11,107 million, up 0.2% year-on-year
• Earnings per share: 0.32, missing forecasts by 15.79%
• Operating margin: €1,077 million, stable at 12.4% of revenues
• Net profit group share: €724 million, down 13% year-on-year
• Organic free cash flow: €60 million

Earnings vs. Forecast

Capgemini’s EPS of 0.32 fell short of the forecasted 0.38, resulting in a negative surprise of 15.79%. This EPS miss is significant compared to previous quarters, where Capgemini typically met or exceeded expectations. In contrast, revenue slightly exceeded forecasts, suggesting effective sales strategies.

Market Reaction

Despite the EPS miss, Capgemini’s stock rose by 6% to €13.03 after the earnings announcement. This increase suggests that investors are optimistic about the company’s strategic focus on AI and cloud services, which are seen as key growth areas. The stock’s movement is particularly noteworthy given its attractive 2.54% dividend yield and strong free cash flow yield, as reported by InvestingPro. InvestingPro has identified several additional bullish indicators, including the company’s consistent dividend growth and strong market position, with many more insights available in the Pro Research Report.

Outlook & Guidance

Capgemini maintains a cautious outlook, with a constant currency growth target of -1% to +1% and an operating margin target between 13.3% and 13.5%. The company aims for an organic free cash flow of €1.9 billion. Despite geopolitical tensions and economic uncertainty, Capgemini is focused on offshore growth and AI-driven productivity enhancements.

Executive Commentary

CEO Eimat Ezad highlighted the benefits of strategic actions, stating, "We see the benefits of the action announced in Q3 2024." CFO Nivi Bagat emphasized fiscal discipline, noting, "We continue to have very strong fiscal discipline." These statements underscore the company’s commitment to strategic growth and financial stability.

Risks and Challenges

• Geopolitical tensions could impact market stability and growth.
• Increased restructuring costs may affect profitability.
• Economic uncertainty poses risks to achieving financial targets.
• High attrition rates could challenge talent retention and operational efficiency.
• Competitive pressures in AI and cloud services require continuous innovation.

Q&A

Analysts questioned Capgemini’s ability to meet its free cash flow target amid economic challenges. Executives expressed confidence in achieving this goal through strategic focus on offshore growth and AI-driven productivity savings. The company remains committed to navigating a competitive market with strong fiscal discipline.

Full transcript - Carrefour (CAP) Q2 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to Capgemini H1 twenty twenty five Results Webcast and Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you need to press 11 on your telephone.

You will then hear an automatic message advising your end is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Eimat Ezad, CEO.

Sir, please go ahead.

Eimat Ezad, CEO, Capgemini: Thank you. Good morning and thank you for joining us for this H1 twenty twenty five results call. I’ll be joined today by our CFO, Nivi Bagat. Our performance continues to improve through the first half of the year and Q2 slightly exceeded expectations. In a volatile economic environment and persistently soft demand, we have demonstrated the strong resilience and adaptability in navigating these challenging conditions.

We see the benefits of the action announced in Q3 twenty twenty four. The revenue growth rate gradually improved quarter after quarter and the Group returned to positive constant currency growth in Q2 at plus 0.7% year on year. For H1 twenty twenty five, revenue reached 11,107 million euros up 0.2% year on year. Bookings totaled EUR 11,993 million over the period, plus 2.1% year on year. The commercial momentum is solid with a book to bill of 1,080,000,000.00 despite client decision cycle that remain lengthy in this environment.

The operating margin 100 amounts to EUR 1,077,000,000 or 12.4% of revenues, so stable year on year. In a challenging environment, the performance in H1 demonstrate the resilience of the group’s operating model and the improvement of our operational efficiency. Our organic free cash flow features a traditional seasonal pattern, as you know, so plus €60,000,000 in H1 twenty twenty five and the normalized EPS stands at €6 So in Q2, revenue growth was stable or continued to gradually improve compared to the previous quarter across all regions, businesses and most sectors. First from a geographic perspective, growth rates in The UK and Ireland, North America and Asia Pacific and Latin America have accelerated. Growth rates in Continental Europe including France more stable.

From a sector perspective, Financial Services and T and T sectors continued to accelerate to reach mid single digit constant currency growth. Manufacturing also improved, but continued to weigh on the Group growth. Finally, from a business perspective, strategy and transformation and application and technology maintained their positive growth rates. The strongest improvement came from operation and engineering fueled by improvement across all the business lines, particularly in Business Services, which recorded high single digit growth. During the first half of the year, clients remain focused on driving efficiency through cost transformation program.

Discretionary spend was still muted. Our positioning as a business and technology transformation partner of our clients is well recognized and in that context, Capgemini continues to enjoy strong traction, thanks to our high value service offering. This is particularly visible in cloud and data and AI. So to illustrate this, let me share a few examples. On cloud, Capgemini secured a multi year framework agreement reinforcing our role as a trusted advisor and strategic partner to a key public sector client in Europe.

Our solution is anchored in the integration of cutting edge cloud technologies, including sovereign cloud capabilities, tailored for high security environment. It outlines a clear pathway towards sovereign cloud infrastructure while driving the modernization of applications and processes to enable a next generation digital platform for public service delivery. On the intelligence industry side, Capgemini secured a strategic contract to support a leading global aerospace company. The objective of this engagement is to accelerate production, while significantly reducing non conformities. Our delivery model played a decisive role in securing the contract.

It combined the use of generative AI to create comprehensive design solution based on historical analysis and follows the SAM deployment model that ensures continuous support for globally distributed technical teams. Finally, Capgemini has been chosen as a strategic partner of a U. S. High-tech company to spearhead this global finance transformation. To that end, we will design, formalize, and deploy a multi year finance transformation roadmap that defines and prioritizes the portfolio of viable transformation project within all finance capabilities.

Ultimately, we will operate the clients’ operational finance activities and move them to best in class processes, while optimizing them thanks to technology such as AI. Now, you look at the underlying trends in the market now, we see continuous traction for the technologies at the core of tech driven business transformation. There is a clear appetite for digital core, is driven by strong demand for agile ERP enabled business transformation. Companies today have a cloud first strategy, cloud continues to be a major subject of interest and huge discussion with our client as they design their data and AI strategy. And in the realm of data and AI, we see strong demand to harness adverse analytics and artificial intelligence to generate actionable insights and fuel innovation.

So thanks to our end to end model, our industry expertise and strong ecosystem of partners, we are well positioned to capture this demand at scale. At the same time, we observed some fast rising traction and accelerating momentum in some new areas. First on defense and sovereignty, momentum is particularly high in Europe. We are very well positioned being one of the very few European scale players combining the leading position in all relevant capabilities and industries. On intelligent operation to transform and operate horizontal and vertical business processes leveraging JN AI and JNTI.

With the acquisition of WNS, we will provide the group with the scale and vertical sector expertise to capture the rapidly emerging strategic opportunity created by the paradigm shift from traditional BPS to Genetic AI powered intelligent operation. And of course, continue to see fast pricing demand in Gen AI and AgenTiC AI more generally. Now coming to the Gen AI, Gen AI, the market is showing strong momentum, which together Gen AI and Gen ZKI contributed to over 7% of our Q2 bookings. We continue to invest in strategic assets to strengthen our position and accelerate, notably the launch of the Resonance AI Framework, our strategic blueprint designed to help leaders conceptualize structure and drive successful AI powered transformation. The expansion of our AI first portfolio, we have structured and enriched our offering by enterprise domain to comprehensively address client needs, and the continuous enhancement of our RACE platform now featuring a gallery of AI agents, Gen AI assistant, and AgenTik systems.

We have also introduced an AgenTik AI builder, a robust suite of tools and framework to design, orchestrate, and monitor multi agent workflows. So let’s highlight a couple of examples from our Q2 wins. For Global Media firm, we opened new frontier with intelligent operations for finance to transform their predominantly manual operation. We developed a suite of AI agents that automate complex variable tasks and empower real time data driven decision making, enhancing both efficiency and strategic insight. For U.

S. Energy clients, we refactor a legacy application using Generative AgenTeC AI technologies to a Capgemini proprietary accelerator that automates code conversion. AI enables the analysis of legacy code structures and suggests an automate refactoring steps to improve maintainability, performance and integration with modern systems. This makes this effort a scalable proof of concept for modernizing numerous other applications, improving operational efficiency and reducing time to market. Finally, for a global life science client, we automate the analysis of the build up materials to accelerate generation of environmental reports for medicines by leveraging GNI, the time to produce ISO compliance report can be reduced from several weeks to minutes.

This acceleration enables our client to respond faster to tenders requirements, protecting billions of annual revenues at risk. Now, coming to the outlook, as we enter Q3, we see some stability in the environment. While we update our growth outlook today, we decided to retain the cautious stance adopted at the beginning of the year. So in order to account for the uncertainty created by geopolitical tensions and the slow economy. So after the good H1 performance, we narrow our constant currency growth outlook to between minus 1% and plus 1%.

On the M and A contribution to growth, it is now assumed to be limited to around one point versus one to two points initially. This means that we are narrowing up the underlying target. The operating margin target of 13.3% to 13.5% and the organic free cash flow objective of around EUR 1,900,000,000.0 remain unchanged. As a reminder, our outlook does not take into account the contemplated acquisition of WNS. Thank you for your attention.

I’ll now hand over to Yvie.

Nivi Bagat, CFO, Capgemini: Thank you, Jaime, and good morning, everyone. I’m pleased to share with you the highlights of our H1 twenty twenty five results. After a good start to the year, our Q2 revenues also came slightly above our expectations. Overall, group revenues reached EUR 11,107 million in H1 twenty twenty five, up plus 0.2% at constant currency and slightly down minus 0.3% on a reported basis. Operating margin amounted to EUR $1,377,000,000 or 12.4% of revenues stable year on year.

After other operating expenses, financial and income tax expenses, the net profit group share reached EUR $724,000,000 compared with EUR $835,000,000 in H1 last year. Basic EPS stands at EUR 4.26, down minus 13% year on year, while normalized EPS is plus 2% year on year to EUR 6. Finally, we generated an organic free cash flow of EUR 60,000,000 in H1 twenty twenty five compared to EUR 163,000,000 in H1 last year. Moving on to our quarterly revenue growth. Our revenue growth rate gradually improved during H1, and the group returned positive constant currency growth in Q2 at plus 0.7 year on year.

This was notably supported by the targeted actions that we’d announced at the end of Q3 twenty twenty four. This represents 110 basis points improvement compared with the Q1 growth rate and brings this to plus 0.2% of our constant currency growth for H1. In line with our comments at the beginning of the year, M and A contributed around one point over the period. Turning to FX. With the depreciation of the U.

S. Dollar, currency movements became a headwind in Q2 with a negative impact of 170 basis points. For the first half of the year, FX had a negative impact of 50 basis points. As a result, the reported growth was minus 1% in Q2 and minus 0.3% for H1. At this point in the year, we expect the FX impact to remain a headwind in the second part of this year, leading to a negative impact from minus 1.5 to minus two points for the full year.

Moving on to bookings. The group enjoyed a solid commercial momentum in the first half of the year. Bookings totaled EUR 12,000,000,000 in H1 with EUR 6,100,000,000.0 in Q2. This represents constant currency growth of plus 2.1% and plus 1.5% year on year, respectively. Book to bill reached 1.1 in Q2.

This brings our H1 book to bill ratio to a strong 1.08. Looking first to revenues by sector. Most of our sectors enjoyed a gradual improvement in the revenue growth rates through the first half of the year. Therefore, I will focus my comments first on Q2. The financial services and TMT sectors each grew plus 5.5% year on year at constant currency, marking their fifth consecutive quarter of improvement.

While the manufacturing sector remained weak in Q2 at minus 4% year on year on a high basis of comparison in Q2 last year. It also improved visibly with the growth rate up by 190 basis points versus Q1. The Energy and Utilities and Public Sectors remained solid in Q2, up 2.3% and plus 1.4%, respectively, although decelerating slightly versus their Q1 growth rates. Lastly, the consumer goods and retail sector and the services sector remain under pressure in Q2 with a slight contraction similar to Q1 at minus 1.3% and minus 1.7%, respectively. Moving on to revenues by regions.

Let’s start with Q2 revenue trends and see how they compare to those reported in Q1. Growth rates continue to improve in North America, United Kingdom and Ireland and in the Asia Pacific and Latin America region, all of which were already very solid in Q1. France and the rest of Europe region reported growth rates in Q2 similar to Q1. Turning now to H1, where I discussed year on year growth at constant currency. Revenue growth in North America was 1.6% and reached 6% in The United Kingdom and Ireland region.

In both regions, growth was mainly driven by Financial Services, TMT and Energy and Utility sectors. Asia Pacific and Latin America region enjoyed strong growth at plus 8.7%, mainly fueled by the Financial Services and TMT sectors that enjoyed double digit growth. Conversely, revenues in France and Rest Of Europe region declined by minus 5% and minus 2.3%, respectively. In both regions, growth in resilient public and PMP sectors was more than offset by lower activity in the manufacturing and consumer goods and retail sectors. Moving on to our operating margin by region.

As is often the case with half year results, we experienced more fluctuations in regional margin evolution than what we typically do on a full year basis. So please keep in mind that H1 regional margin evolution does not necessarily provide a full representation of what the full year evolution will be. Operating margin in North America improved by 80 basis points to 16.3. For France, you might remember that last year’s operating margin was affected by one off items. Excluding these one offs, there has been no improvement in the underlying margin.

Operating margin in The UK and Ireland region remained at high level at 18.1%, although it declined by two forty basis points compared with the record level reached in H1 last year. Lastly, operating margin in the Rest of Europe and Asia Pacific and Latin America regions was down year on year by seventy and forty basis points, respectively. Moving on to revenues by business. All our businesses delivered higher year on year revenue growth rates in Q2 twenty twenty five when compared to Q1. The strongest progress came from operations and engineering with visible improvement across all its business lines.

We are notably pleased to report that Business Services recorded high single digit growth in Q2. Turning now to H1 at constant currency. Total revenues of Strategy and Transformation Services grew by plus 1.3%. Total revenues of Applications and Technology Services, which is Capgemini’s core business, was up by plus 2.6%. Conversely, operations and engineering total revenues decreased by minus 1.5%.

Now moving on to the headcount evolution. Total headcount stands at 349,400 employees at the June 2025, up by 4% year on year and by 2% since the March 2025. While our onshore headcount decreased slightly by 1% year on year, our offshore headcount increased by 7% over the period. Consequently, the offshore leverage stands at 59% in June 2025, up by two points compared with June 2024. Lastly, attrition increased slightly over the past quarter.

This brings our last twelve month attrition rate to 16.1% at the June 2025, up by almost one point year on year, but still well within our nominal operating range. Moving on now to the analysis of our operating margins. The continued shift in Capgemini’s mix of offerings towards more innovative and value added services, combined with a strong focus on cost discipline, enabled the group to offset the impact of current market softness on our gross margin. At 26.4%, gross margin is down 30 basis points year on year, but still 20 basis points above H1 twenty twenty three level. After an increase last year, selling expenses and G and A expenses are now down by 10 basis and 20 basis points, respectively.

Consequently, the operating margin remains stable at 12.4 of revenues in H1 twenty twenty five. This demonstrates again the resilience of the group’s operating model in a challenging environment. Moving on to the next slide, our net financial result is an income of EUR 16,000,000 compared to EUR 20,000,000 in H1 twenty twenty four. The income tax expense decreased by EUR 60,000,000 year on year to EUR260 million. The effective tax rate stands at 26.2% in H1 twenty twenty five, down from 28% for the same period last year.

This is due to a positive noncash one off tax item that will not repeat in H2. Hence, our EPR will be higher for the full year, and this has no impact on our cash tax rate that is expected to be substantially higher in 2025 than it was last year. Let’s turn to the recap of our P and L from operating margin to net income. The other operating income and expenses represent a net expense of EUR $4.00 1,000,000, up by EUR 164,000,000 year on year. This was notably driven by restructuring costs, which are not only higher this year as anticipated, but also more skewed to H1 in 2025.

This stood at €136,000,000 in H1 twenty twenty five versus €53,000,000 in H1 twenty twenty four. Consequently, our operating profit amounts to €976,000,000 or 8.8% of revenues compared with EUR $1,147,000,000 at 10.3% in H1 last year. After financial and tax expenses, share of equity affiliates and non controlling interests, the group share and net profit is down minus 13% year on year at EUR $724,000,000. While the basic EPS is also down minus 13% to EUR 4.26, our normalized EPS is up plus 2% year on year to EUR 6. Finally, let’s have a look at the evolution of our organic free cash flow and net debt.

We generated an organic free cash flow of EUR 60,000,000 in H1. As you know, our cash generation pattern is highly skewed to the second half of the year. A few final words on capital allocation. In H1 twenty twenty five, the group paid dividends of EUR $5.70 invested EUR 28,000,000 on bolt on acquisitions. Consequently, our net debt stands at EUR 2,800,000,000.0 at the end of H1.

This compares with EUR 2,800,000,000.0 at the end of H1 last year and EUR 2,100,000,000.0 at the 2024. As you saw in our press release this morning, the Board of Directors have approved a new multiyear share buyback program of EUR 2,000,000,000, which will essentially be funded by the group’s organic free cash flow. As a reminder, in June 2025, the group redeemed in full and at maturity the EUR 800,000,000 bond issued in June 2020. So on that note, I hand back to Eilman for the Q and A session.

Eimat Ezad, CEO, Capgemini: Thank you, Nivi. Let’s now open the Q and A. And to allow a maximum number of people in the queue to ask questions, I kindly ask you to restrict yourself to one question and a single follow-up. Operator, could you please share the Q and A instructions?

Unidentified: Thank you.

Conference Operator: Our first question comes from Sven Nirk from Barclays. Please go ahead.

Sven Nirk, Analyst, Barclays: Great. Good morning and thank you for taking my questions. Just a question on the outlook. The guidance implies at the midpoint a similar performance in H2 as we have seen in H1. Can you speak a bit about the upside and downside risk to this?

If macro shouldn’t deteriorate, should we see an improvement in the second half given the easier comps? Thank you.

Eimat Ezad, CEO, Capgemini: Thank you. Good question, of course. As you know, we are pretty cautious because changing the environment can be pretty brutal. We, for the moment, see some stability going into Q3, so we can expect for the moment Q3 to be similar to Q2. That’s what we see.

So, of course, it all depends after that of what the environment looks like going into Q4. But as I say, we see too much uncertainty to be able to really be sure about how Q4 looks like and that’s why we’re going to remain cautious from that perspective.

Sven Nirk, Analyst, Barclays: Perfect. I quickly follow-up maybe the as

Eimat Ezad, CEO, Capgemini: well?

Sven Nirk, Analyst, Barclays: We have seen a flat development in the first half, the second half could see an improvement. What would drive that improvement? I’ve seen obviously a pickup in hiring, but the utilization improved as well in the second quarter. How does that feed into the margin outlook for the second half? Thank you.

Eimat Ezad, CEO, Capgemini: Listen, the pickup in hiring is in offshore, so let’s be clear here. I think it’s very important to understand that right now we do continue to see a decrease of headcounts in Europe, especially in Continental Europe. On the other side, we see a continuing increase in headcounts in Offshore driven notably by U. S. Recovery and financial services, which as you know operate with a pretty high offshore leverage.

On the margin, the market remains quite competitive and we fight to be able to maintain our operating margin and if there’s a possibility to improve, we’ll improve, but it remains a pretty challenging environment from that perspective.

Sven Nirk, Analyst, Barclays: Okay. Thank you very much.

Conference Operator: Thank you for the question. One moment for the next question. Our next question comes from the line of Mohamed Moawala from Goldman Sachs. Please go ahead.

Mohamed Moawala, Analyst, Goldman Sachs: Great. Thank you. Good morning, Hyman. Morning, Devi. Good morning, Mohit.

Two from me. Firstly, just in terms of the organic growth development, you’ve kind of hit this sort of flattish level. You talked about kind of stable environment and now similar kind of growth in Q3. But how do you think about your visibility into the kind of back half of the year, particularly with some of the kind of trade agreements kind of being formed? What does it sort of take for that sort of exit rate to sort of accelerate?

And also by region, I know North America is inflected, but you obviously would probably need some inflection in Europe. So just curious on your visibility into kind of the year end, if we get some of this kind of resolution. And then secondly, when we think about the gross margin, NIVY, how should we think about that for the rest of the year? Know it was down 30 bps in the first half, but do you see sort of scope for that to sort of improve? Or should it be similar to what we saw in H1?

Thank you.

Eimat Ezad, CEO, Capgemini: Yes. I think for the moment on the visibility, again, we have good visibility, but as you know, shifts in the year can make things can change pretty quickly. I’m not necessarily with the fact that we have a lot of stability on the tariffs for the moment. Yes, there’s an agreement between Europe and The U. S, but I don’t feel that everybody is aligned and consider that this is a positive thing for Europe if you read between the lines.

So it’s a good sign that there’s an agreement that we have to see what is going to be the impact of this agreement. And there’s still volatility overall. I think it’s I prefer to remain cautious at this stage. Of course, we’d love to see stability and some improvements through the end of the year. And that would be the positive scenario.

But for the moment, I prefer to remain cautious. We see it in Q3 going to Q3, but I remain cautious going into Q4 for the moment. And that will define the exit phase by region. Mean, we see as you see, we can see improvements right now in North America where both financial services and the rest of the business has done some recovery, but Europe and especially Continental Europe remains quite challenging for them.

Nivi Bagat, CFO, Capgemini: So more coming to gross margin. As I did mention, while gross margin is down year on year, it is up if you look at it versus 2023 by 2026. And as Aiman did mention, it is a tough environment, but we are very focused and we continue to be focused on the portfolio mix, which as you know is a very important area, which we focus on in terms of that margin improvement as much as we’re focused on operational parameters, SG and A, etcetera. So we’re doing everything that we possibly can across the piece to try and improve it. But I think we will continue to be focused on the portfolio mix as best as we can.

Mohamed Moawala, Analyst, Goldman Sachs: Great. Thank you.

Conference Operator: Thank you for the question. Please hold for the next question. Our next question comes from the line of Frederic Boulan from Bank of America. Please go ahead.

Frederic Boulan, Analyst, Bank of America: Hey, good morning, Eman and Yves. Just a quick question around the restructuring costs that increased substantially in first half. So, Yves, you mentioned there is some seasonality here this year and the cost structure is skewed to the first half. Can you talk a little bit about your I mean, maybe recap what’s going on in terms of restructuring? What is the scope for the costs this year and on a more structural basis?

I mean, is this something we should assume is gonna get more significant? And maybe a follow-up around the headcount side. So pretty significant increase Q2. We have some peers, especially in India, announcing restructuring plans, so it would be great to share a little bit your outlook around the headcount side into the rest of the year and next year? Thank you.

Eimat Ezad, CEO, Capgemini: Restructuring, as you know, I mean, some of this is driven, of course, by the evolution of our headcounts in Europe, and that’s what driven some of

Mohamed Moawala, Analyst, Goldman Sachs: this

Eimat Ezad, CEO, Capgemini: restructuring. Listen, for me, I don’t see anything structural. We have some adjustments to make to take into account an evolution in terms of demand and some structural changes in the market. But for me, doesn’t mean that we have a recurring increase in restructuring costs. But there is some adjustment to be made, we continue making them to ensure that we have an economically sound and adapted workforce to the demand that we see in the market.

On the account evolution, again, I insist it is offshore growth, okay, because this is what’s supporting the drive in terms of growth in areas like financial services, largely as well APAC growth and also all the North American growth in general. But we still have headcount reduction, which are ongoing in Europe based on evolution of demand. So yes, it’s positive headcount evolution driven by offshore and driven by the nature of some of the business which are currently growing. But we still have some other areas where we have headcount reductions.

Frederic Boulan, Analyst, Bank of America: Okay, thank you.

Eimat Ezad, CEO, Capgemini: And as long as we see growth in North American Financial Services, we continue to drive the headcount increase in volumes, but it will continue to be focused mainly in Offshore.

Nivi Bagat, CFO, Capgemini: Just to add to what Anu said, most of the restructuring is skewed towards H1 as I did mention. So I expect that for the full year, we’ll probably be somewhat similar to what we did in 2023. So that sort of number. That’s I think

Frederic Boulan, Analyst, Bank of America: okay. Sorry. You said similar to ’23?

Nivi Bagat, CFO, Capgemini: Yeah. At least at least similar to 2023. Thank you.

Conference Operator: Thank you for the questions. Please hold for the next question. Our next question comes from the line of Ben Castillo Bernos from BNP Paribas. Please go ahead.

Unidentified: Hey, good morning, Neeli. Thanks very much for having me on here. Just one on regional margin development, please. So UK and Ireland looks to be down two forty basis points in the year despite very strong growth. Just any comments there?

And likewise, for France, seeing some improvement on the margin that was obviously more of a pain point last year and that’s on stable revenue decline. So, if could a little bit on the moving parts in those two regions. And then just a clarification, if that’s okay, on the buyback. Have you given any indication on the timeframe for that capital to be deployed? Thank you.

Nivi Bagat, CFO, Capgemini: So I think a number of questions there. So I think the first thing is that as you are aware, with our half year results, we tend to sort of experience some fluctuations which do not necessarily translate into a full year basis. But as I specifically mentioned on France, we I did mention last year that there was one offs, and that one offs don’t come into play now, which essentially means if you look at the underlying margin, there hasn’t really been any improvement. And I do believe that The UK and Ireland margin is one of the strongest and is very strong in terms of where we are. So that’s where we are on that.

On share buyback, if you could just repeat the question. Oh, it’s a multiyear share buyback. So would probably be over the next two to three years in that context.

Conference Operator: Got it. Thank you. The questions one moment for the next question. The next question comes from the line of Laura Matteo from Morgan Stanley. Please go ahead.

Nivi Bagat, CFO, Capgemini: Good morning. Thank you for taking my question. Two questions, please. The first one is on the share buyback program. Is the buyback meant to just offset the options dilution?

Or is it bigger than this? And then the second question is on the gross margin evolution. I think it declined. Can you please talk about this, please, and explain why? Thank you.

Eimat Ezad, CEO, Capgemini: On the share buyback, no, it goes beyond the neutralization of management’s incentives. So yes, it does have an intent to reduce the overall number of shares over the next two to three years.

Nivi Bagat, CFO, Capgemini: Okay. On the gross margin, as I just mentioned earlier, the gross margin is down year on year. But versus twenty twenty three, we have improved gross margin by 20 bps. The focus is very much on improving our portfolio mix as we go ahead, and that would be a very important focus area for us. But as you can see, beyond the gross margin, we’re doing a lot of work on our operational parameters, as I said earlier, SG and A, etcetera, as well.

So the focus will continue to be the portfolio mix, and that’s where we’re focused really. You.

Conference Operator: Thank you for the question. Please hold on the next question. We have the next question comes from the line of Laurent Dore from Kepler Cheuvreux. Please go ahead.

Laurent Dore, Analyst, Kepler Cheuvreux: Yes. Good morning, Man and Nif. Two questions as well for me. First one is on the pricing condition. I know it’s a competitive market, but have you seen recently some clients asking for additional rebates because of the G and AI ramp up, which could explain the slight erosion in gross margin because utilization rate I’ve seen have been trending pretty well.

And I guess you’re still doing the work on portfolio. So the pricing of condition of the market will be useful to share. And my second question is on the cash. You did well on the first half. Confirm the full year.

Some peers in the market have talked about delayed cash collection. Do you see you start to see the same? And are you still very comfortable with EUR 1,900,000,000.0 by the end of the year in free cash flow? Thank you.

Eimat Ezad, CEO, Capgemini: Okay. Pricing condition, it’s a competitive market. I mean, you see the slow growth rate. We have some of our Indian peers who are shrinking year on year. As we imagine, it remains a very competitive pricing environment.

And new clients embed or ask for some of the GNI savings, of course. I mean, this is not new. It has already been the case for several quarters where today clients do expect some savings in productivity. We don’t foresee it in the same way in cost as you know, it’s usually less cost reduction, but there is some expectation in some of these contracts in terms of delivering some of the generic savings. It’s part of the pressure we see on gross margin, but it’s the overall competitive market.

I mean, it’s what we expect when the growth is still slow and the environment is still unstable. There is quite a bit of price competitiveness, which has not significantly increased compared to previous quarters, which I think is important to remember that. Yvie, on the Yes.

Nivi Bagat, CFO, Capgemini: So on the organic free cash flow, so yes, we clearly maintain our guidance. But having said that, it is a demanding environment. There is pressure on DSOs. And if you then mechanically take the effect of the currency headwind and, of course, the margin profile, it adds its own level of pressure. But we continue to have very strong discipline fiscal discipline.

And yes, we believe at this stage it is definitely challenging but feasible to be able to do it. So it takes a lot of fiscal discipline to be able to do it.

Conference Operator: Okay. Thank you. Thank you for the questions. Our next question comes from the line of Michael Briss from UBS. Please go ahead.

Eimat Ezad, CEO, Capgemini: Yes, good morning. Thank you for taking

Michael Briss, Analyst, UBS: the questions. Automotive and aerospace, I think, have been quite challenging industries for a while. I think particularly aerospace in the second half of last year sort of stepped down. Can you talk about the trends there in the first half and the outlook for the second half specifically? And then just on BPO, I think on the announcement of the deal, talked about high single digit growth there.

What’s happening in the rest of the operations portfolio? Can you talk about the sort of Sogety Outran portfolio versus outsourcing? Thank you.

Eimat Ezad, CEO, Capgemini: So first on manufacturing space, automotive not surprisingly is still under pressure and it still has a big impact year on year and that’s part of what’s really driving manufacturing down. Aerospace is still slightly declining, but we start to see some improvement going to the second half and probably definitely going to next year. So as I said, I’ve always shown a lot of confidence regarding the Aerospace perspective and it was just a little bit of a cycle in terms of evolution of demand and I feel very confident about the recovery of the sector. Automotive, as I said before, we have some structural changes and we have to adapt to them. As it relates to operations, as you know, we don’t provide really growth rates by operation, but I’m happy to share with you the perspective is our Cloud Infrastructure business has some support of course from all the Cloud continuous demand.

So it is improving. I’m not going say it’s growing a lot, but it is improving because there is of course some pluses and minuses, but overall I would say it’s solid. On the engineering side, we have the impact of the manufacturing sector. So yes, I mean, this is not a growth in growth right now, but we see development. For example, we are in double digit growth in areas like consumer products.

It’s something that we have invested in. We see good perspective on life sciences and we see a rebounding market probably going to next year on aerospace. So, but in the meantime, I think we have to adjust to some of the structural changes and impact that we have year on year coming from the auto sector that still weighs pretty heavily there and overall in manufacturing. But again, with good perspective in terms of the evolution based on what we see growth areas and some of the widening impact that will come from notably this impact of automotive. Thank you.

Conference Operator: Thank you for the questions. Our next question comes from Charles Brennan from Jefferies. Please go ahead.

Charles Brennan, Analyst, Jefferies: Great. Thanks for taking my question. Actually, firstly, just a clarification and sorry to labor the point on the buyback, but I don’t think I’m clever enough to go through the option vesting schedule. Can you just tell us how much of the €2,000,000,000 you’ve allocated to offset share option dilution versus actually reducing the share count? And then secondly, just in terms of business dynamics, I think a number of your peers are talking to demand being biased to vendor consolidation deals.

Are you participating in those? And is that contributing to your gross margin development? And everyone seems to be claiming they’re a beneficiary of vendor consolidation. Arithmetically, it feels like someone should be losing from that process. Who do you see as the net losers?

Thank you.

Eimat Ezad, CEO, Capgemini: Okay. Again, I don’t think we’re going to detail regarding how much of that is dilution, etcetera, because it depends on the timing of the buybacks. Of course, the faster the buyback, the more it has impact in terms of reduction of share counts, the slower the buybacks, the less impact they’ll have. So it depends if it’s done over two years, three years. So it’s difficult to say that this is allocated to this or that because depending on the timing.

Charles Brennan, Analyst, Jefferies: Do you think the annual cost of the share option dilution is? And then we can make our own assumptions Yes. About the

Eimat Ezad, CEO, Capgemini: issue about 1% of share capital. So the reality is it’s a bit less than 1% that we need on a yearly basis. So the rest we go towards net reduction of shares, right?

Mohamed Moawala, Analyst, Goldman Sachs: Thank you.

Eimat Ezad, CEO, Capgemini: On the vendor consolidation, yes, we are in vendor consolidation. Listen, the vendor acquisition game is very simple. If you’re small, you probably get squeezed out. If you’re big, you stay in and you win. Okay?

So, it’s usually a simple exercise. Of course, you are competitive at the end of the day. But for us, we see ourselves, like some of our peers have claimed, as a net winner as part of these consolidations. I think where you really have the positive impact is in some new deals, which are not the study vendor consolidation, it’s where people are actually putting out new deals. And there’s a number of new deals of people who are putting a lot more out in terms of potential outsourcing and offshoring than what they have traditionally done.

And this is where you’re really going to get a beneficiary from a real growth. Does this have an impact? Yes, nothing new. We have been in that business for a long time. Every time that there is a consolidation, you basically giving upfront savings.

It takes eighteen to twenty four months to try to recover some of these margins. The reality, yes, it does this way somewhat in the gross margin? Yes, of course, because when you win some of the consolidation at the front end, it tends to have a negative impact on the gross margin side. Thank you. And the next question will be the last question.

Conference Operator: Thank you. Allow me to take the next questions. One moment please. The last question comes from Harry Reid from Rothschilds and Co. Redburn.

Please go ahead.

Unidentified: Hi, good morning. Thanks for taking the question. Just a question on France. I think at Q1, you said that the growth trough was behind you, but growth is kind of stable at minus 5% or so. Just wondering if that weakness driven by the crossover in France in aerospace and automotive.

Just any clarity on what’s driving that sluggish market would be helpful. Thank you.

Eimat Ezad, CEO, Capgemini: Yes. Frank, I would I think we have a broad weakness in France. I don’t want to attribute it only to aerospace. I think aerospace has weighed a little bit. Automotive has weighed more.

But overall, we had to slow down in France. As you can see from a number of players, it’s not just specific, I think an adjustment that’s going through overall, there’s a lower level of activity and confidence in the French business environment that has basically weighed quite a bit on the spend. Expect that this is stabilizing, so it will improve bit by bit. But overall, we don’t have perspective in the short term of a big pickup in France.

Unidentified: Great. Thank you very much.

Conference Operator: Thank you for the questions. With that, I would like to hand the call back to the management for closing.

Eimat Ezad, CEO, Capgemini: Okay, thank you very much. As you see, we start to see some improvements. The action that we started in Q3 last year to start really to have an impact and look forward to continue to work on this and continue to progress. We look forward to interacting with all of you over the coming days and weeks. Thank you again and look forward to interact with you as we reach our Q3 results.

Thank you. Bye bye.

Conference Operator: Thank you. That does conclude today’s conference call. Thank you for your participation. You may now disconnect your lines.

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