Capgemini SE

PAR:CAP

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the Capgemini First Quarter 2021 Revenues Conference Call.I will now hand over to Mr. Aiman Ezzat, CEO.Sir, please go ahead.

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Good morning, everyone, and thank you for joining us for this quarter 1 call.I'm joined this morning by Carole Ferrand, our group CFO.First, I would like to say a word about the start of the year and the COVID-19 situation. We have a strong start of the year. The world economies are recovering fast. And some countries are quickly getting back to normalcy, but as recent events remind us, notably in India and Brazil which are home to almost 50% of our team members, COVID-19 is still there and has dramatic impacts. Our priority is and will remain the health and safety of our colleagues and their families. We continue to operate at over 97% work from home in India and Brazil. We as a company are fully committed to providing timely medical, financial and emotional support to all our team members and their dependents globally. And I would like to thank all our teams for all their support, continuous engagement and outstanding performance.Let us now turn to our Q1 publication. In the context we all know, these Q1 results show an excellent performance stronger than we anticipated. At constant currency, our revenue grew by 24.3% year-on-year. Of course, supported by the Altran acquisition, we are in fact accelerating compared to Q4. Importantly, we are back to organic growth of 1.7% year-on-year versus the minus 2.4% that we achieved in Q4. These mean that, at constant scope, group revenues are now above pre-crisis levels.Bookings totaled EUR 4.2 billion, up 27.3% in constant currency year-on-year. The book-to-bill is 98%, so it's higher than last year, and our funnel is healthy.Digital and Cloud growth continues on double-digit pace and represents now 2/3 of the group activity. The recruitment activities are very high to address upcoming demand, notably in India. Now these reflect the speed, of course, of the economic recovery and the increased demand for technology, but with, as expected, limited impact from the recent lockdowns in Europe, it furthermore demonstrates the pertinence of our strategy and its accelerated deployment.Now this organic growth acceleration is across every sector, geography and business. What is remarkable is that all the sectors and all geographies are accelerating compared to Q4, with most of them back to organic growth. In yellow on the chart is the ones that are still a bit shrinking in Q1. They are still in recovery, but they're on their way to organic growth and definitely will be back to organic growth in Q2. France and 3 sectors, so Manufacturing, Services and Energy & Utilities, are still in that category. In all these areas, we however see a strong momentum improvement compared to Q4, notably in Manufacturing. When you see I have 3 arrows is basically because the recovery is very strong compared to Q4. We see a strong improvement. Manufacturing notably recorded a Q1 leap forward. More globally, engineering accelerates its recovery and contribute to the improvement of organic growth. Our engineering as well improved a lot compared to Q4. We're still slightly negative but will be back to organic growth now in Q2, strong organic growth. And Services is the one that's still a little bit behind, but even there I have good hope that we'll be back to organic growth in Q1 (sic) [ Q2 ].In light green is -- basically is all what has moved now to positive organic growth. It includes Financial Services, which was already there; telco, media and tech; and the regions of Rest of Europe and North America, where we see a strong acceleration. And finally, in dark green is really the areas that are extremely dynamic, fueled by very strong investment of our clients to accelerate their digital transformation. It's U.K. which has been extremely strong, Asia Pacific and Latin America but also the public sector that remains very strong and Consumer Goods & Retail that saw a marked improvement to join this group. All in all, we see improvements everywhere. Decision cycle are really back to normal, and the pipeline is promising all across the board.From a portfolio perspective, when we look at the momentum we see in our pipeline, our booking was fueled by our offering portfolio dynamism which is driving innovative and large deals. This is notably true in cloud and data, which are the main drivers of technology and business transformation for the coming years. To give a few example of some interesting recent deal: We signed a great project with Singapore Airlines to leverage cloud for their customer-first strategy. We were retained by national rail service to enable Intelligent Industry in their operation via smart scheduling through a data platform. We were engaged for a large multiyear deal with Met Police in the U.K. to build a hybrid cloud infrastructure.And to further seize the opportunities brought by innovation, we continue to invest in our offering portfolio. In the second quarter, we will launch new offering in sustainability, which will be the first ones, but also we'll continue with our Intelligent Industry offering portfolio, continue to focus on addressing the specific CxO challenges by industry.Turning to Capgemini Engineering. As you may know, Altran is now fully integrated in the group since January 1. The new organization is fully operational. Teams are working well together, with new horizons and prospects within the group. We closed 200 joint deals now in the last 12 months, and the pipeline keeps expanding. The deal shows a strong complementarity of our offerings, our unique and innovative positioning and the tremendous opportunities brought by joint go-to-market. Our new brand, Capgemini Engineering, aims to capture our unique set of market-leading capabilities in engineering and R&D. It will support our leadership position in Intelligent Industry as digital and physical works converge.To summarize. Capgemini Engineering is now fully live and delivering results. Synergies achievement are well on track, and we'll provide you an update with our H1 results.All in all, this is a very good start of the year. We are optimistic for the second quarter and comfortable with the objectives set for 2021. The constant currency top line is expected to increase between 7% and 9%, including scope evolution of 4.5 points. We anticipate the margin to be back to 2019 level between 12.2% and 12.4%. And we expect organic free cash flow to exceed EUR 1.3 billion. And based on this Q1 trend, we should exceed the midpoint of the targeted growth range.Thank you for your attention. I now leave the floor to Carole, our CFO.

[Carole Ferrand, CFO & Member of Group Executive Board]

Thank you, Aiman.And let's start with the key trends of this first quarter of 2021. We are pleased to report such a strong start to the year with strengthening momentum across all our regions, sectors and business lines.Our revenues for the first quarter of 2021 reached EUR 4.271 billion. The group is back to organic growth at plus 1.7%. As our Q1 last year was not materially affected by the pandemic with an organic growth of 2%, this means that we are above pre-COVID levels with revenues above Q1 2019 at constant stock -- scope and exchange rates. With the contribution of Altran, our constant currency growth stands at 24.2%, which is another sequential improvement compared to the last quarter of 2020. Taking into account a negative FX impact of 3.8 points, our reported growth stand at 20.4% for this first quarter. For the full year, I'll remind you that we expect that the net scope impact will contribute to an estimated 4.5 points to group growth, while FX should represent around 1.5 points of headwind.Let's now look at our revenues by region. Each of the group's regions reported another visible improvement of their constant currency growth rates year-on-year compared to those observed in Q4 2020. This performance was mainly driven by a strong business momentum on a like-for-like basis.First and foremost, the North America and Rest of Europe regions, which account in total for almost 60% of group revenues, returned to organic growth in Q1 with pretty broad-based sectorial improvements. Building on its already solid momentum at the end of 2020, our activity in the United Kingdom and Ireland further accelerated in Q1. This region even achieved double-digit organic growth with very dynamic Financial Services and public sectors.Our business in France is continuing its gradual recovery. Q1 is still down versus the same period last year on a like-for-like basis mainly due to an improving but still negative Manufacturing sector. Finally, the Asia Pacific and Latin America region remained very dynamic with a robust organic growth in Q1 2021. Financial Services and TMT were the main contributors to this performance.Let's now have a quick look at our revenues by sectors. There is still a lot of contrast in our performance by sector, but all of them achieved a sequential improvement over the last quarter of 2020. The Manufacturing sector has shown the most sizable improvement, primarily in Rest of Europe, France and North America, with only limited organic decline in Q1. The public sector maintained a strong dynamic with another quarter of double-digit growth on a like-for-like basis, while Financial Services and TMT continued to improve, with their organic growth firming up in Q1.The consumer goods sector also made a good start to the year, returning to a high single-digit organic growth fueled by the acceleration in North America. Finally, the Energy & Utilities and Services sectors are gradually recovering, with a smaller organic contraction than in Q4 2020. On top of these underlying organic trends, the Manufacturing and TMT sectors benefited the most from the contribution of Altran, with a constant currency growth of 43.6% and 84.2%, respectively.Now let's have a look at our revenues by business lines. All our business lines reported in Q1 the further improvements for -- of their annual growth rates compared to those experienced in Q4 2020.Firstly, our Strategy & Transformation consulting services returned to positive organic growth in Q1. With the contribution of the high-value services from Cambridge Consultants and frog, it reported a 25.2% growth at constant currency. The growth acceleration was very visible in our core business line application and technology services, which also returned to positive growth on a like-for-like basis.Lastly, the Operations & Engineering services, reporting only a modest organic contraction in Q1 while still down on a like-for-like basis, our engineering activities recording another meaningful improvement. The strengthening momentum in cloud infrastructure services also contributed to the acceleration in this business line. With the consolidation of Altran, constant currency growth reached plus 77.6%.A quick look at our bookings now. Bookings amounted to EUR 4.201 billion at -- in Q1, up 27.3% at constant currency. The book-to-bill ratio stands at 98%, 2 points above last year levels. Overall, we see a pretty good investment momentum among our clients.And finally, a few comments on the head count evolution. The total head count reached 274,500 employees at the end of March, up 25.3% year-on-year. The onshore leverage stands at 55%, which is a noticeable increase of 1 point compared to the end of 2020. Lastly, the last-12-months attrition stand at 12.8%, down 6.5 points versus March last year and stable compared to the end of 2020. We still expect attrition to increase throughout the year but nothing that will be manageable -- not manageable.With this, I hand over back to Aiman to open the Q&A session.

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Okay, thank you. So operator, we're now ready to start the Q&A.

[Operator]

[Operator Instructions] The first question comes from Adam Wood from Morgan (sic) [ Morgan Stanley ].

[Adam Dennis Wood, European Technology Equity Analyst]

Congratulations on the strong start to the year. I've got a couple of questions, please. The first one is maybe just on the French market. Could you just talk a little bit in more detail around that? That's obviously lagging a little bit the rest of the business. Do you think that's just a timing issue in terms of some other sectors you're exposed to and maybe confinement having some impact on demand? Are there any structural concerns we should be worried about there around competition or the industries or customers you're exposed to that would prevent France performing as the rest of the group is over the next few quarters?And then secondly. I hear the comments on attrition kind of being manageable. A lot of -- particularly the Indian-based peers have talked about the market actually becoming quite hot from a hiring and attrition point of view. Maybe if you can just talk a little bit about that. And normally that's actually a good thing because we end up with a lot more pricing power in the sector. Do you see any signs of that yet? Or is it just that competitors are being quite price disciplined rather than actually seeing your pricing power start to improve?

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Okay. So first, on the French market. French market, I think it's the base effect impact. I think the dynamic in France is very good, but as you know, in France we were more affected in -- than some other geographies notably because as well of the business mix heavily towards Manufacturing, not only sectors like pyro and automotive but as well in terms of the business line with engineering and consulting. These are still in -- like engineering is still in recovery, for example. It will weigh on the French growth, so -- but overall I don't see anything negative. I mean, starting in Q2, we'll see a strong dynamic in France because we'll not have any more the base effect that we'll -- have in Q1. So I'm fully confident about the French recovery, and all the signs are quite positive in the market today.On the attrition. No, there is an increase in attrition. I mean, at this stage, we are not concerned about the attrition, but definitely the demand in the market is very high, okay? So we are -- we have -- I think everybody in India is experiencing some shortage of resources. Demand is pretty high and the talent market is tight. So if you bring that to pricing, the pricing discipline is high. I've seen a number of surveys in addition to what our teams say. Usually you have people coming and complaining about how difficult it is and how demanding it is. Now during -- let's not fool ourselves. On large deals, the market is very competitive, but the pricing discipline is pretty high. And we don't see people discounting to try to get this because the -- we start to see basically scarcity of resources in a number of areas.

[Operator]

The next question comes from Mohammed Moawalla from Goldman Sachs.

[Mohammed Essaji Moawalla, Equity Analyst]

Aiman, Carole, congratulations on the strong quarter. 2 from me. First of all, given your comments, Aiman, around the improving kind of market backdrop, sales cycles returning to normal, larger deals coming back, you've sort of obviously revised your outlook to the kind of above the midpoint, but as we look at the shape of the rest of the year, what is causing you not to be more optimistic, especially given the easing comps but also the expectation you have around kind of individual kind of geographic and end market improvement? And secondly, you've talked about sort of wallet share or share gains both in -- as we've gone into a crisis but coming out. What have you baked in, in terms of sort of share gains, in your medium-term expectations? And more specifically, when you look at your performance versus a lot of your European peers, there is now very significant difference even off of the Q1, so are there any particular regions where these share gains are expected to be more pronounced over others?

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Okay, listen. So on the first one, we are optimistic. Again I -- as we said, we already [ tightened a bit the fact that we're above ] the midpoint in terms of the growth range. We are in Q1. We are not -- we are a cautious company, as you know, in terms of our perspective. And I think it's a bit early for what people would have expected, which will be an upgrade of the guidance. I think we will see that as we look at our Q2 results. At this stage, it's a bit early to basically look at the full year from that perspective, but definitely the dynamic starting in Q1 is pretty good, and hence we feel comfortable in terms of our guidance to be above the midpoint at this stage.On the wallet share gains, listen. I think European markets will continue to be quite strong, and I think we are doing extremely well. We are well positioned in some markets. I see our growth being very strong, for example, in markets like the U.K. Our dynamic in Germany remains to be very good, but it remains competitive. So you look at compared to some of our European peers. You have to look as well compared to some of our Indian peers that continue to have pretty strong growth rate. So it's in Europe. So it's a very competitive market, but it's true that in terms of competition we end up on a number of deal now facing much more with some of the global players and some of the European ones in terms of some of the large deals. But the competition even from European players is still there. So we expect to continue to have share gains in Europe, to try to grow above the market and accelerate basically our growth notably in North American and Asia Pacific market. And North American market now also looks -- our return to growth looks pretty good.

[Mohammed Essaji Moawalla, Equity Analyst]

And I may have missed it at the start. What was the digital cloud growth rate? I know you said double digit in the release, but have you quantified it?

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

It's -- I mean it again is double digits in -- or I mean basically it's above 10% in terms of growth rate. So it continues to remain -- remains pretty strong. As you know, now we'll start giving basically more the trends as we go. And in terms of weight, it will -- it's about 2/3 of our revenues now.

[Operator]

The next question comes from Laurent Daure from Kepler Cheuvreux.

[Laurent Daure, Head of IT Software and Services Research]

Congratulation from my side as well. Just 2 points for me this morning. The first is if you could give us a little bit more granularity on the improvements you've seen in the engineering space, if it's coming from the tough sectors like auto and Manufacturing or the other sectors. And what kind of outlook do you see for the rest of the year given that one of your peer is looking for a very strong rebound in this field in the second quarter? And my second question is on -- I know it's not a quarterly margin, but given that you start the year with better sales and you probably still have a very much cost control strategy in the first part of the year, would it make sense to expect this year the margin to be a bit more front loaded than in recent years?

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Okay, I will leave the nice margin question to Carole. Listen, for the outlook for engineering, definitely, I mean, we -- I think we continue to outperform some of our peers in that field, and I think it was the same thing in Q1 in terms of growth. If you think about the sectors, I think -- I mean all sectors are improving. I mean we have seen some of the comments. I confirm that Life Sciences is very strong, for example; that all what is around Internet and software is quite strong. Aeronautic is still quite negative but is better than what we expected, all right? So the trends are positive there. And yes, we do expect base -- with the base effect of Q2 basically a strong rebound starting in Q2 in engineering and R&D. Margin question, for Carole.

[Carole Ferrand, CFO & Member of Group Executive Board]

So Laurent, indeed we have a good start to the year. And we have a good target to return to 2019 margin levels, if not above, with 12.4% at the high end of the targeted range. So we feel comfortable about this guidance indeed.

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

And the -- some phasing...

[Carole Ferrand, CFO & Member of Group Executive Board]

Too early to comment. And we don't comment on the phasing at this stage, of course.

[Operator]

The next question comes from Stefan Slowinski from Exane BNP Paribas.

[Stefan Julien Henri Slowinski, Research Analyst]

Yes. Just to follow up on Laurent's question actually on the margin. Just wondering, now that we're 1 quarter into the year, if we could think about the moving parts there again. And with revenues running faster than expected, hiring accelerating, potential for wage inflation, how should we think about the range in margin this year? Is it -- can we assume that, if you get to the high end of your revenue range, you can also get to the high end of your margin range? Or can we not extrapolate that?

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Do you have another question, or is that the only one?

[Stefan Julien Henri Slowinski, Research Analyst]

We'll just leave it at that one.

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Okay, listen. Again I -- frankly, we don't comment on Q1, on margin. We think it's too early in the year, but the dynamic is quite positive. So to be frank, it's an H1 discussion, but the trends are positive.

[Stefan Julien Henri Slowinski, Research Analyst]

Okay, so there's -- I mean, in terms of some of those changing dynamics around hiring and whatnot, that would not necessarily impact the outcome for full year...

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

No. I mean -- so the attrition is still reasonable on 12 months [ rating ]. We have started the year. We know, of course, the extension on compensation in some areas where the areas [ are hot ], but again it's manageable. And as the pricing are firm in the market, we feel quite comfortable about the trends currently.

[Operator]

The next question comes from Nicolas David from ODDO BHF.

[Nicolas David, Analyst]

Aiman, Carole, 2 quick ones from my side. And congrats for the very strong start to the year -- and both regard the [ sanitary ] situation. First one is, yes, given the situation notably in India, is it potentially affecting your productivity there? And maybe, could you share, yes, a gross percentage of your head count which is currently affected by the COVID or -- and [ hopes they are well ]. And the second one is again regarding the situation. I guess, at the beginning of the year, you had some plan regarding timing for travel resumption. Do you believe that -- and marketing event also. Do you maybe think that it could resume later than expected? Or do you think that the plan is still on track? And if it happens to again -- to start later, those travels and marketing event, will you invest again or -- savings? Or do you keep saving for the margin?

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Okay, on the India situation, the -- we have always been very high in terms of work from home. So we don't have a major shift. I mean we -- I think we had, at one moment, up to 2,000 people back in our offices. So as you see, it's like 98.5% work from home, and now we have maybe 200 or 300 people in offices at client side. So almost nobody compared to the 125,000 people-plus we have in India. So operationally we don't have any disruption. We are able to address any needs. Of course, we have more cases now than we had 3 months ago, but we don't have any operational disruptions. And I have a twice-a-week call with our CEO of India to assess the situation. And right now we're monitoring things very closely. We don't see any operational risks for the coming weeks, okay? Now we have to recognize that the health situation is dramatic in India, right? So -- and so there's a lot of efforts deployed by our team, by our leadership to support our teams in India. We have things like telemedicine. We have opened our campuses for vaccinations. We have agreement with hospitals and with -- to be able to do testing. We have agreements with hotels to be able to provide quarantine facilities for our staff. So we have -- even have oxygen in a number of sites to be able to address some urgent needs for some of our team members. So we are doing everything we can both for our teams and socially.So as I say, dramatic health situation. We're doing all our utmost to be able to support our teams. Operationally, we don't see any issues for the coming weeks. And we do expect that now some of the lockdown measures back into cities like Bangalore and Delhi are going to basically have a positive impact over the next 2 to 3 weeks on the propagation of the disease.On the travel resumption. Just for you to know -- and I'll let Carole comment on one thing. I mean we are still in a travel ban until the end of Q2, I mean. So it's by exception that people are still traveling. Some countries will start opening up like the U.K. and North America, but that will be local country board that will make some of this decision based on the situation. But international travel is still almost none. And country-based travel is limited, with probably some resumption in -- to expect before the end of Q2 in both North America and U.K. Carole, on the impacts...

[Carole Ferrand, CFO & Member of Group Executive Board]

On impact on margins. I -- you need to have in mind that most of our travel are [ billable ] travels. So it's both revenues and [indiscernible]. And when we set up the guidance, of course, we knew the situation. So we were not aiming at returning back to our 2019 level of travels, anyway, and not only for costs reason but also for sustainable reasons. And the maximum travel was 50% of [ 29 ] levels, anyway.

[Operator]

The next question comes from Stacy Pollard from JPMorgan.

[Stacy Elizabeth Pollard, Head of Software and IT Equity Research]

A couple for me. I just wanted to sort of zoom in on North America. How should we think about modeling seasonality of revenue growth throughout this year and into next year? And secondly, I think you said that Financial Services was seeing good momentum. Which other industries are you strong in? And how should we think about mid-term goals in the U.S.? I guess it's like an -- just an ongoing question here. And could we expect more M&A now that Altran is integrated? So 3 in 1.

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

[indiscernible] and the M&A and sectors, okay. So listen, on North America, there's 2 things, of course. Last year, we were also impacted, like everybody, by COVID and the slowdown coming from COVID. So we have economic recovery. So definitely the momentum on technology investments is good everywhere, including in North America. We have the fact that we have now at the end of our transformation plan -- we also have a new leader across the Americas. And I see, we have seen very good momentum in terms of the bookings. So we are already back to positive organic growth in Q1 in North America. And I expect acceleration now through the rest of the year, so starting in Q2, we should start to see very strong momentum in North America. [ It sounds ] quite positive. In addition, based on all the expectation of the American economy booming, I can only see something positive in North America for the coming years, if you want. So I think we are well positioned. We have done what we need to do in terms of transformation and focus and the dynamic is good.On the sectors. We talked about Financial Services, Life Sciences. Again I do -- I mean auto is really geographics. It's a bit slower in France, for example, but expected to accelerate, but it's very dynamic in Germany. So it's a bit here you have some geographies that will play around that. Aeronautics, we don't expect a big recovery. Telco, media and technology, we do expect a strong acceleration there. In Manufacturing, overall it will turn to positive, but I think some segments of Manufacturing will continue to weigh. In Consumer Products Retail Distribution, that was one of the big surprises of Q1. The momentum is very strong in terms of acceleration compared to what we have expected and even what we see from some of our -- other players in the market in terms of results. So we have a very good dynamic there. Energy & Utilities is one that's a bit slow. And it's more the energy side, but again here we do expect with some of the digital investments in utilities, notably in areas like smart grid or even all the front end in terms of services and new offering to customer, digital offerings, that we'll see an acceleration there. So I mean it's difficult to see a sector where you'd be negative about in the coming quarters, with exception, as I say, as aeronautic sectors and some areas of the services which will still be affected like cruise lines, transportation, some entertainment that I think will still be impacted because it will take a bit more time for them before they resume.M&A. I mean we still have a small deal [indiscernible], so -- but we don't have any expectation to do anything large. But we have a continuous pipeline of smaller deals in M&A that we look at, which we are focused around some of the priorities we have set even at the CMD.

[Operator]

The next question comes from Michael Briest from UBS.

[Michael Briest]

Well done for a good start to the year. 2 for me. So Aiman, if I look at the slides on Altran, it looks like you've signed 200 joint deals. On the Q4 slide, it was 44. And the pipeline has gone from 410 to 700. That's a remarkable performance for a calendar Q1, which is normally not that important. Can you talk through the dynamics and whether you think the synergy targets perhaps have upside there? And then Carole, maybe just in terms of seasonality: Obviously Q2 last year was the weakest from an organic growth point of view. Should we still be thinking that year-on-year organic peaks in Q2? Or at least the sequential improvement should be strongest then.

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Okay, listen. On Altran, 200 deals in the last 12 months. So listen, the dynamic is good. The deals are good. The pipeline is strong. Again I think there a lot of deals but also a lot of small deals in there. I think it's too early to say are we going to exceed the synergies. As I said, we will provide an update this year in terms of overall how much of revenue synergies we consider we have achieved now in terms of basically a continuous base, but as you imagine, with Intelligent Industry pickup, I'm quite optimistic about what we can achieve there. So overall I think that -- if you look at the synergies, we look from the cost perspective and operational perspective. We look from the top line perspective. I'm extremely comfortable with the decision we have made around the Altran acquisition and the expectation in terms of basically value creation for our shareholders.

[Carole Ferrand, CFO & Member of Group Executive Board]

On the organic growth. As last year was minus 7.7%, even indeed, Michael, the basis of comparison is -- enables a rebound. And we'll see Q2 as the most -- the peak in terms of growth for 2021 indeed.

[Operator]

Your next question comes from Neil Steer from Redburn.

[Neil Steer, Partner of Software and IT Services Research]

Congratulations on a solid start to the year. You mentioned, I believe, the figures were Digital and Cloud roughly 2/3 of revenues and it's growing at double-digit rates. That necessarily implies that the 1/3 of the business that is obviously not Digital and Cloud is contracting at something approaching 20% or certainly in a band of sort of 15% to 20%. And I'm just wondering. To what degree is that a reflection of you actively managing down exposure in that part of the portfolio? Or whether that's just a reflection of the volume and the pricing dynamics within the marketplace overall.

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Neil, I think this is just a reflection of the dynamics. We're not trying to shrink the portfolio, but we're trying to shift quickly. I mean you have to consider that some of what we're doing -- for example, a lot of what we do in our custom application development. We don't do anything that's not native cloud anymore, so by definition, that portfolio, which would have been traditional in terms of growth, will -- basically is shrinking at the speed of sound because now all the growth is now shifting to providing native cloud development. With people moving to cloud, most of the businesses move to cloud. So at the end of the day, by definition, that implies that the rest of the portfolio is shrinking if client is accelerating move to cloud. That mean all noncloud-related activities almost shrinking very quickly. And whatever you had as traditional, I don't know, ADM, application development and management, as you shift the client to the cloud, that this activity disappears in a certain way because now it becomes part of cloud and digital. So it's quite natural, okay?

[Neil Steer, Partner of Software and IT Services Research]

Okay.

[Aiman Ezzat, CEO, Member of Group Executive Board & Director]

Thank you very much. This was our last question. So thank you again, and [ we look ] forward to seeing you in -- and talking to you in the coming weeks.Bye-bye. Have a great day.

[Carole Ferrand, CFO & Member of Group Executive Board]

Thank you. Bye-bye.

[Operator]

Ladies and gentlemen, this conclude the conference call. Thank you all for your participation. You may now disconnect.