Capgemini SE

PAR:CAP

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to Capgemini 2020 Q3 Revenue Conference Call. I now hand over to Mr. Aiman Ezzat, CEO. Sir, please go ahead.

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

Thank you. Good morning, everyone. I'm delighted to welcome you for this Q3 results of Capgemini. And of course, I'm joined this morning by Carole Ferrand, our CFO. But I would like exceptionally to start this presentation differently, not starting with numbers, but with our purpose, which we adopted 3 weeks ago: unleashing human energy through technology for an inclusive and sustainable future. So what does this purpose mean for us? First, for the Capgemini Group, we believe in technological innovation. It's a lever of progress for our clients, and our role is to make technology useful, accessible and ethical. Second, technology should benefit humanity at large. Capgemini intends to be a benchmark in terms of its contribution to society, in terms of sustainability, diversity and inclusion, in particular. Third, the group's men and women are at the heart of our ambition. With more than 600,000 employees or former employees over the past decade and probably 1 million in the upcoming decade, the group intends to be recognized as a school of excellence whose talents and skills now resonate well beyond the company. This purpose is now one of the fundamentals of our group. It was developed together with all our Capgemini team members, but also with clients, other stakeholders and NGOs. This purpose will act as a compass for each and every employee. You will also have noticed that we'll be unveiling in the coming days our new brand platform. It had been a long time since we last appeared in advertising. This Get The Future You Want platform is built for both our customers and our employees and truly reflect the spirit of the present day. I am very proud of Capgemini values, and I'm convinced that our high standards in terms of behavior is key to success in the coming years. Now moving to the Q3 results. This Q3 strong performance improvement particularly highlights our increased resilience and agility. On Q3, we saw a solid improvement versus the Q2 growth rates, both at constant exchange rate and on an organic basis. The group grew by 18.4% year-on-year in Q3 at constant currency, supported, of course, by the Altran acquisition starting in April. Our quarterly revenue exceeded for the first time EUR 4 billion. Our organic growth saw a limited decline of 3.6% in Q3, significantly better than minus 7.7% recorded in Q2. The level of order intake remains solid with a book-to-bill of 97%, essentially stable year-on-year, but 8 points above the average of the last 5 years for a third quarter, which you know is usually seasonally weak. Digital and Cloud growth accelerated in Q3. We are back to double-digit year-on-year. Digital and Cloud represents now over 60% of the group activity in Q3. All in all, this quarter came in better than anticipated. Now if you look at the recovery, overall, we saw a marked improvement in performance compared to the Q2. It's visible across all the dimensions of the group. This slide shows the path to recovery of our business. It's representative of the organic performance and is consistent with what we shared with you in April.We can see that all sectors, geographies and activities are recovering. Of course, as anticipated, the speed of recovery varies. For example, in sectors, Financial Services, Public Sector, TMT are doing well. On the geographic side, U.K., Rest of Europe and APAC are also recovering well. And on the business side, Applications and Operations are also in good shape. They either recovered or close to recovery -- to recovering their pre-COVID trends. Some of them, such as public sector and Financial Service, have even more than recovered, meaning they post higher growth rate than the ones pre-COVID. Conversely, not surprising, the Manufacturing sector, notably with auto and aerospace; and the services sector, notably with transport and hospitality, are still suffering. France, on the geographic side, and not surprisingly, Engineering and Strategy & Transformation, which are both quite cyclical, are still impacted even if we have recorded some material improvement, notably when we see, for example, what happened in France between Q2 and Q3. And we are quite confident that in the coming quarters, things will continue to improve. The new demand is now back to the level it was in January. We see some clear trends at our clients in terms of requirement. They look for cost reduction and resilience, in particular via accelerating movement to the cloud. And they also look for areas of vendor consolidation, as we mentioned before. We also see 2 specific areas in terms of demand which are really very -- growing very fast, AI and analytics and also cybersecurity. Finally, we see more and more clients working on improving their environmental sustainability where we are investing heavily to increase our offerings to our system. We continue to operate at 90% work from home. And as such, our model is really stabilized in the current operating model, operating mode for the coming months or as long as needed be. And in fact, a word about the Altran integration. The integration is on track. I remain very positive about where we are. We have finalized the integrated organization, which will be implemented in January. If I can just take 2 elements to illustrate progress. First, we have now launched our initial joint offering in the field of Intelligent Industry. We announced last week the creation of new services focused on 5G and edge. These new services will enable communication service providers, network equipment suppliers and large companies across industries to deploy 5G and edge technologies at scale. Our 5G and edge offerings are designed to ensure our customers make the right investment, allowing them to build the foundation of the data-driven transformation and make the most of this next industrial revolution. We ran already over 90 5G projects since 2019 across the industry value chain from network equipment providers to use cases for industries. So it's not something new. We have been packaging. We are now launching for a strong growth boost in terms of growth. Also, Capgemini first offers dedicated to Intelligent Industry reflect the increased capacity of the group to design, develop and offer the product and services of tomorrow. We'll continue in the coming weeks with offers in the field of autonomous cars and data-driven R&D in life sciences and consumer products. That's the first element. So the offerings are there. The Intelligent Industry offerings are born, and we have launched now in the market. The second element to illustrate that we are moving fast forward is the number of business opportunities that continue to develop. We have already won more than 30 new deals, and the pipeline has expanded now to 350 joint pursuits. And let me illustrate some of them. We recently signed exciting deals that really demonstrate the value of Capgemini plus Altran. If I take the first example, Capgemini and Altran have recently signed a deal with a global industrial group to build the digital twin of its factories. Considering the unique set of capabilities required that this has been a sole sourcing deal. That means we have not been in competition. This would not have been possible for either Capgemini or Altran alone. It illustrates the unique combination of value that the new group really brings to its clients. The second example is for a global energy and industrial company. Altran and Capgemini Intelligent Industry expertise was applied to support the client's network elements across multiple geographies, spanning from Mexico, Spain, China, India and France. Thanks to the unique combination of skills and geographic footprint, again, we won this deal post acquisition without an RFP. And for the last example, because of the diversity of capabilities required for the deal, only a consortium normally would have been able to build. The deal was awarded to the group due to the ability to deploy all the required skill with a single accountability. Only one company managed to be stand-alone and stand as a credible long-term partner. It was us, and we won. These 3 examples really show the value, which is created by the unique combination of Altran-Capgemini in the field of Intelligent Industry. I believe very much in the potential of what we can develop here. It's a vast transformation which will take place, and the current crisis does not call into question at all the potential of the Intelligent Industry; quite the contrary. Now beyond Intelligent Industry, in vendor consolidation, I'll just take the example of Financial Services, right, to illustrate a bit what we see. In Q3, we won 4 consolidation deals, and we now embarked on consolidating a smaller player in 2 other large clients. On cloud, just one data point, our booking growth is more than 50% year-on-year with large public cloud providers. So I give you 2 data points beyond Intelligent Industry of what we see both on vendor consolidation and on cloud pickup. Now for the full year outlook, we confirm all the objectives we set for 2020 at the time of the publication of the H1 result. The constant currency top line is expected to increase between 12.5% and 14%. This is equivalent to an organic growth of minus 3% to minus 4.5% for the full year. The margin contraction will be limited to 60 to 90 basis points versus the 12.3% reported last year, and our organic free cash flow will exceed EUR 900 million.We expect Q4 to confirm the positive trend we are in and record a further improvement in top line, although more limited than the one we have seen due notably to the ongoing instability in the environment. We are still quite confident the group targets to achieve a performance above the midpoint of the growth and margin range, right?So now we are telling you that we will be above the midpoint of the objective we have given you for both the growth and the margin. And of course, we are comfortable on our cash flow targets. In addition, we shoot for another solid book-to-bill in Q4, confirming the solid booking trend we see since Q2, and we remain confident on the prospect for further improvement for 2021. And on this, I pass over to Carole.

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

Thank you, Aiman. And let's start with the key trends of this quarter of 2020.Q3 came better than expected, as Aiman just explained, with an improvement in terms of underlying trends across all our regions, sectors and business lines. With revenues of EUR 4.008 billion, our growth at constant currency reached 18.4% in Q3 compared to the same period last year. This represents a visible improvement compared to the 13.4% growth recorded in Q2. Capgemini also benefited this quarter from the full effect of the integration of Altran, as it did in Q2. Therefore, this improvement is representative of the underlying organic growth improvement. Indeed, on a like-for-like basis, the improvement is also quite significant with a decline in revenues, which was contained in Q3, at minus 3.6% year-on-year compared with the contractions of 7.7% in Q2. FX had a 2.8 points adverse impact in Q3, leading to an overall negative impact of 0.7 point on a year-to-date basis. Our reported growth stands at 15.6% in Q3 and 10.6% for the first 9 months of the year. For the full year, we expect that Altran and other acquisitions will contribute to an estimated 15 points to group growth, while FX should represent around 1.5 points of headwind. Let's now look at our revenues by regions. Each of the group regions reported a visible improvement in the year-on-year growth rates in Q3 compared to those observed in Q2, both in terms of organic and constant currency growth. North America, which grew by 10% at constant currency in Q3, still reported an organic contraction in the past quarter, but smaller than in Q2, thanks notably to a stronger performance in TMT and Financial Services. U.K. and Ireland, constant currency growth reached 9.1% in Q3 with also a much smaller organic decline in Q3 versus Q2. Financial Services are progressively recovering, while the public sector further accelerated. France remained the most impacted region in Q3 with the largest organic decline. However, the underlying trend improved significantly in Q3 with a solid public sector and meaningful improvements in the industry, Financial Services and other services sectors. With the contribution of Altran, France revenues were up 20% at constant currency in Q3. Rest of Europe went back to organic growth in Q3, thanks in particular to the recovery observed to -- in many sectors, industry, Retail and Financial Services sector. Finally, the Asia-Pacific and Latin America regions further accelerated in Q3 and thus remains the group's most dynamic region in terms of organic growth. As a reminder, Altran did not substantially change the group [ pure ] mix since both companies are rather similar in that respect. Let's now have a look at our revenues by sectors. Our performance by sectors remained contrasted in Q3, but all sectors recorded an improvement compared to the situation observed in Q2. Financial Services, which is still our largest sector with 25% of group revenues, returned to organic growth in Q3 and reported 7.4% growth at constant currency level. The public sector further accelerated in Q3 with solid organic growth across all regions, recording a 14.8% growth at constant currency in Q3. The sectors that has been the most severely impacted in Q2, namely: industry, 23% of the group; and services, 5% of the group, which includes transportation and hospitality, recorded an improvement with a smaller organic contraction in Q3. On a constant currency basis, the industry sector grew by 38.5% in Q3, while services slightly declined by 1.3%.The TMT sector also improved in the past quarter but remained slightly down on an organic basis. However, with the integration of Altran, this sector grew by 79.2% at constant currency in Q3. Finally, the Consumer Goods and Energy & Utilities sectors recorded a slightly smaller organic decline in Q2 -- Q3 than in Q2. Now let's have a look at our revenues by business lines. Let me remind you first that the integration of Altran has a more visible impact on our business mix, which becomes slightly more diversified. As illustrated on this slide, our Operations & Engineering business line now accounts for 33% of group revenues. All our business lines experienced an improvement of their year-on-year growth rates in Q3 compared with those observed in Q2, both at constant exchange rates and on an organic basis. While still being our most effective business lines, Strategy & Transformation consulting services recording a smaller organic contraction in total revenues in Q3 than in Q2. Taking into account the high-value services from Cambridge Consultants and frog, it reported a 13.5% growth at constant currency in Q3. Applications & Technology services, our core business line, also recorded in Q3 a significant improvement in their activity, but nevertheless reported a slight organic decline in the past quarter. After taking into account the consolidation of Altran, the constant currency growth is slightly positive at 0.3% in Q3. Lastly, the Operations & Engineering services also reported a smaller organic contraction in Q3 versus Q2, driven by stronger growth in cloud infrastructure services and a slight improvement in the performance in the engineering businesses. Thanks to the contribution of Altran, they posted a 70.4% growth at constant currency in Q3. A quick look now at our bookings. Bookings amounting to EUR 3.896 billion in Q3, up 17.4% at constant currency. This brings our 9-months bookings to EUR 11.7 billion, which represents a steady 12.6% growth at constant currency. The book-to-bill stands at 97%, 8 points above the 5-year average for a third quarter. This solid performance supports our confidence in the gradual improvement of revenue growth over the coming quarters. And finally, a few comments on the headcount evolution. The total headcount reached 264,600 employees at the end of September, up 20.6% year-on-year, but slightly down since June and down by 2% compared to December 2019 on a like-for-like basis. The offshore leverage stands at 53% on a combined basis, stable over the past months. Lastly, with an attrition in line with expectation in Q3, the last 12-months attrition stands at 14.3%, down by 7 points versus September last year. With this, we can now open the Q&A session. Operator, can you please detail the instructions?

[Operator]

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

[Adam Dennis Wood, European Technology Equity Analyst]

I've got 2, please. Just first of all, one of your major partners, SAP, had a very significant set of announcements yesterday. And I think the key message from them was that their core large enterprise ERP customers would be moving to cloud. That's obviously one of the biggest installed bases in the world. Could you talk a little bit about what opportunities that brings Capgemini as those customers move from on-premise infrastructure into cloud in terms of the revenues and opportunity set that you can get from that? And maybe just secondly, as we look out through the quarters, on the current situation in terms of the bookings you have, obviously, a little bit more caution on the health situation going into Q4. Could you help us when you think the group might return to organic growth overall?

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

Thank you, Adam. Good -- 2 good questions. So first, on SAP, I mean, again, I was a bit surprised by the reaction of the market yesterday. So I'd first try to talk a bit about dependency on SAP. I'd like to remind everybody, the big ERP wave is behind us in terms of basically the very large implementation of the years 2000 to 2010. Our dependency on implementation of ERP like SAP is in low single digits in terms of revenue. So I think there's a bit of an overreaction and over tie-up between basically SAP results and the reaction on some tech stocks, including ours. Now putting that aside, we'll talk about the opportunities. First, you have to know that year-on-year, our bookings and revenue linked to S/4 is up, okay? So we are growing on S/4. Second, I think the movement to the cloud can only accelerate. I think we had seen -- we started an offering more than 3 years ago, helping clients move to SAP basically environment to the cloud. In a number of cases, we haven't seen clients really moving so fast. So if we see an acceleration, as SAP basically points out, or basically helping to move some of this workflow to the cloud, of course, it's a project, and it's going to increase the project work linked to basically helping clients do that. So for us, it's positive. On the bookings, on the -- you said the second question was on the organic -- can you remind me?

[Adam Dennis Wood, European Technology Equity Analyst]

Yes. Just when do you think the group can get back to organic growth?

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

Yes. When we can get back to organic growth? I mean, listen, today, I really bet on Q2, okay? We'll improve a little bit in Q4, but we see it's limited. I think the -- we'll have a bit of way on the -- from the current health situation. So we'll continue to improve in Q4, and we should see some further improvement in Q1. But I really bet on the return to organic growth, at least with some good confidence level, in Q2.

[Operator]

The next question comes from Stacy Pollard from JPMorgan.

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

A little bit follow-up on Adam's question. I was going to say, we've heard many vendors, including SAP, of course, talking about faster shift to the cloud. I'm sure you're seeing the same. Could you maybe comment as to which vendors you're working with the most on this front and where you think of the biggest opportunities for you over the next year or 2? And then second question, any differences that you're seeing in closure of sort of larger deals versus smaller deals? How are you seeing trends from that perspective?

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

Okay. So on the first one, as I said, we -- if I just consider the 3 hyperscalers, our bookings growth is 50% year-on-year. So I think we are well organized and well positioned to really take advantage of all this cloud revolution, and we only see very big acceleration year-on-year. We expect to gain a strong acceleration next year.We work with all of them. It's a bit like in a different way that happened before. It's really dependent on the client. The clients make the decision. We also have some specific partnerships around some sectors with some of the public cloud vendors around specific solutions, around specific sectors. So we work collaboratively with them, but we're also dependent on some of the client decisions when it comes to that.We also have to point out the fact that there's a very strong pickup in the native cloud development. Remember, it's part of our business, of course. We do a lot -- more and more clients are basically -- some have migrated or some have migrated what they think is important. They not tend to migrate what they have the rest right now. But now we really have the huge pickup in terms of native cloud development. And with that, we see the pickup of relationship like IBM coming from Red Hat. Well, certainly, this is booming again. It's really -- the growth rates are really becoming quite impressive in some of these areas. So we are back on that big wave, which for me is a big wave of new development, which are not linked to packaged software in that case. We have to remember that.And your second?

[Unknown Executive]

Trends in large deals.

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

Yes, the trends on the large deals, listen, we're not back yet. I would say, if I think from a decision-making perspective, I think on the small deals, things are doing well. We still have some hesitation on some deals from some clients. I have to say that our clients will still hesitate a little bit based on the current environment. I can point out, for example, in the auto sector, things have started to pick up, but the slope of recovery is slower than what we'd have expected in a sector like that. I think it will end up by coming, but it was a bit slower than what we expected.On the large deals, when I asked our Head of Sales, Rosemary, she believe we are in a trend that by the end of the year, we'll have normalized basically the decision cycles, okay? So it's improving. We signed a number of large deals this quarter. We have some which we have pushed or they have been decided but not finalized yet. So they're moving into Q4, hence, probably a stronger Q4. But we're not yet in the normal situation in terms of speed of decision-making. That's what you have in mind.

[Operator]

The next question comes from Michael Briest from UBS.

[Michael Briest]

A couple from me as well. Aiman, I noticed that the ODIGO business is up for sale. I think that's the old Prosodie asset. And I just wonder, strategically, how you view the sort of software portfolio within Capgemini and whether there's other assets like this that might be sold. And then just in terms of Altran, I think you gave some additional color in Q2 about how it performed on a stand-alone basis. Is it possible to give that for this quarter and more broadly talk about auto and aerospace or important verticals for it? What trends you're seeing there and whether you're becoming more positive or not on the pace of recovery?

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

Okay. So first, on ODIGO, the reason we are basically in the process of selling ODIGO -- and remember, it is not Prosodie. It's part of Prosodie, so it's not the same thing. But it's because when we bought ODIGO in 2011, it was on the premise that we are trying to develop the non-FTE-based models of revenue that everybody was dreaming about in the industry. And that was to learn really how they're able to do that at the time Prosodie was really a service business. What's happening now is ODIGO is developing into a SaaS platform. And I consider that we are not good at managing products, haven't had any great success in the history of Capgemini basically managing a product life cycle.So we're basically disposing it because we consider it will expand better with somebody who's really focused on trying to develop a software product than it would be with us. So -- and our position on product is basically we still believe that products and services don't mix well, and we really focus on basically on the services business.On the Altran Q3, again, we gave the indication in Q2 because it was the acquisition. We gave the organic growth to show it was doing better than the rest of the engineering world. It continues to do better than the engineering world, and there was some improvement from -- between Q3 and Q2. And as we have seen in the chart, of course, it's an improvement, but it's not a marked improvement yet.And yes, the aerospace and auto sector continues to weigh. If I talk about this sector, the aerospace is still slow, although I think we have won some deals in digital, for example, in aerospace that continues to help us consider that we are better positioned than most of our competitors there. But it's still very slow when you see basically the challenges they have to go through.On the auto sector, it is recovering, but the pace of recovery, notably in Europe, is a bit slower than what we'd expect. So it's improving, but the pickup is not there. On the other side, I looked at the auto numbers, for example, in North America, we're in growth. And in China, it's booming. So we have a bit of a contrasted picture, which basically gives me good confidence on the fact that next year, we should really see a more significant pickup in the auto sector, notably on the acceleration of the evolution of the product lines.

[Michael Briest]

Okay. And are there many more assets that you might see as noncore there on the products side?

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

We don't have products. That was -- one, that was a service that moved to a product. But to be frank, we don't have products in our portfolio, at least that I'm aware of, which I hope I'm aware of everything.

[Operator]

The next question comes from Stefan Slowinski from BNP Paribas.

[Stefan Julien Henri Slowinski, Research Analyst]

Aiman and Carole, just a question on the working-from-home trend. I think you mentioned 90% of staff are still working from home and obviously delivering quite seamlessly. Have you made any decisions about any kind of permanent changes to working practices, maybe more permanent working from home across the group and more flexible utilization of the workforce in terms of allocation of projects? Any other decisions about potentially reducing real estate footprint? Any thinking along those lines that could help us understand maybe the cost evolution would be of interest.

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

Okay. So first, since May, we have launched an initiative called the new normal, which is basically actually addressing that, which was: one, on how to leverage all the knowledge that we gathered across the different countries in the group in terms of how to address finance, HR, delivery, operation, sales, et cetera; and at the same time, trying to start developing what the future model would look like.We have gone through the first set of conclusions on that. We have a pretty good view of what the future we would want -- would look like in terms of how we would operate this new normal. But we can only start experimenting really it once we move, but we have defined HR policies, we have defined models depending on the level of experience of people, their role, et cetera, in terms of what could be the balance, the percentage of work-from-home potential for them. So we are currently working to basically validate our flexible working policy. So with the different legislation in the different countries and our representatives, so all of this for me is in motion, in motion at high speed. We have developed some videos. Even we have some clients now much more interested to look at detail at what we have done. So for me, we're quite advanced.And yes, we have looked at real estate footprint. And yes, there will be some reduction overall, notably, we'll get rid of some old offices, and we'll focus more around reinvesting and basically modifying some of our existing office space to increase both the flexibility but also to make them more like meeting points. So we are pretty much for me design our future from that perspective, and I'm quite comfortable on where we are.What I don't want to do is throw up numbers because I believe that until you really start trying it in a normal environment, which we are not in, it's difficult to really assess what is the right percentage at the end of the day. And it's also depending on what your client will accept. Let's not forget that 80% of our people work in delivery for clients, and it depends what the clients will accept. And today, it's difficult to basically foresee what some clients in some countries will accept as the model. I have clients who are telling me, as soon as all this thing is finished, they want people back on site. So I don't want to throw out numbers, but definitely, we will have a pretty high percentage of work from home.

[Stefan Julien Henri Slowinski, Research Analyst]

Okay. And maybe just a follow-up along that same theme, if I may. You mentioned the increased health crisis and impact in Q4 may kind of limit further improvements. I mean, are you actually seeing a step backwards in some instances? Or is it just kind of slowing the pace of recovery here as we go into the fourth quarter?

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

No, it's slowing the pace of recovery. I don't see -- I still see an improvement in our top line compared to what we have seen in Q3, but it's slowing a bit the pace of recovery. I'm still, as I told Adam, quite confident on the return to growth in Q2, but I don't see it yet in Q1 because of that. I think the current environment, we slowed down a bit the pace of recovery in Q4 and Q1. But we're still recovering, and we'll still see an improvement in the top line in the upcoming 2 quarters before more confidently returning to growth in Q2.

[Operator]

The next question comes from Toby Ogg from Bank America.

[Toby Ogg, Research Analyst]

So firstly, just on the guidance, perhaps you could just talk a little bit around the puts and takes that are baked into the range. I know the low end assumes worsening in the macro environment. But perhaps you could just talk to just how bad of a worsening that might be. And then equally, what does the top end of the range assume when it comes to lockdowns in the macro?And then just secondly, on the margins, perhaps you could just help us with the framework for thinking about how the margin should evolve into 2021. Clearly, there are a number of moving parts, whether it be cost savings from COVID, synergy from Altran coming through and then, obviously, just underlying improvement in the business from 2020 levels. Any thoughts just around the shape of that margin improvement in 2021 would be really helpful.

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

So I'll take the top line one. I'm going to leave the nice margin one for Carole to see what she wants to say there. Listen, on the top line, we clear -- I mean, overall, we clearly said that our Q4 will make that we deliver in the top half of our guidance, right? You can say, basically, if you make the calculation, that means we'll be between minus 60 and minus 75 basis points year-on-year compared to last year on the margin and between minus 3 and minus 3.75.So as you see the range on movement in Q4 becomes more limited in terms of range we're talking about, of course, we're keeping some caution on Q4, taking into account the evolution of the environment. For me, we are in too narrow range already to have a discussion about what will bring the top of the -- we already narrowed it by half. We are too detailed in terms of going what will make it a bit more better or other. It will depend, to be frank, on how the situation will evolve in the next 8 weeks or 9 weeks which are remaining in the year. That's what will make the difference in terms of which part. And as we sit on the cash, we are also quite comfortable in terms of the guidance where we are today.So for me, it's pretty solid. We were more concerned about basically the potential impact of the -- of COVID basically for the last 4 months of the year. We closed September very well and Q3 was strong. Q4 has started well. So now we have a good level of confidence, and that's why we're showing that to you.Carole, on the margin for 2021 and the elements there?

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

Yes. Just to start with on the margin side, I remind you that we have demonstrated our resilience and agility with the figures we provided at the end of H1 and with our group guidance for the full year. So that's the starting point: agility and resilience. Moving to 2021, and I will not disclose any guidance today, as you can imagine, but speaking more on short term and headwinds and tailwinds that we may encounter. On the headwind side, what we can list is some elements, of course, saved in 2020 will be partially returned in 2021, travel or purchases as an example. We may also incur some new investments in the frame of the new normal implementation. But we also have major tailwinds. So to start with, the first one is the better utilization rate, of course, notably onshore, with the return to the gradual recovery and then the return to growth and the better absorption of our fixed costs.What is important to understand as well beyond 2021 is that on the medium term, we have a list of tailwinds, notably the new normal, on real estate, higher flexibility. Of course, the growth rates will bring a higher level of flexibility in terms of margin and the growth of the new and the -- like we said, what we have in terms of differentiation of offers and, of course, Altran synergies, both short term and medium term.

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

You have a more comprehensive answer than what I thought.

[Operator]

The next question comes from Amit Harchandani from Citi.

[Amit B. Harchandani, Director & Head of EMEA Technology Research]

Amit Harchandani from Citi. Two questions, if I may. My first question goes back to the topic of talent. You talked about your attrition rate, which is down year-on-year, which is understandable in this environment. At the same time, there are other industries maybe which are struggling a bit more than your business, which potentially might have talent that might be attractive for you.So I'm just trying to understand, how are you leveraging the pandemic as an opportunity to potentially address the topic of war for talent? And what kind of measures should we expect from your side to maybe get attrition back to the right level, maybe use this as an opportunity to hire the right people? You talked about demand coming from AI and cybersecurity. So very keen to understand how the talent side of the equation is shaping up. And then I have a second question.

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

Okay. So listen, on your first question, it's a very valid question. I mean our attrition will continue to come down because it's 12-months attrition. As you imagine, Q3 was below that number, and that will -- so basically, 12-months attrition will continue to come down. As you know, we like some attrition, though we don't like to go to 0 attrition because it makes our economic model more complicated to manage if it drops too low. When you think about how we're trying to develop talent, there's definitely attraction from other industries. And by the way, part of our development when you think about Intelligent Industry or customer first, which is all the customer front end, it requires more and more industry-specific skills. So you're going to see us more hire people with strong expertise coming from the industries we are targeting, so to bring content and to bring more skills and industry expertise, and that's something we are looking at and we're developing plans around. We have already started doing some movement that will be global, including in India. So that's the first focus.The second focus we have is that we're working more and more on trying to develop the talent that we want to hire. There is a big development in France called [Foreign Language], which is cool, basically, an initiative where we have developed basically skills and talent, including from people from -- to a neighborhood to try to bring, basically, digital talent and digital skills and to be able to prepare them to join us. And we commit to hire a bunch of them.The second thing that we are doing as well is, for example, we are co-investing with some other French firms to create an AI school. Basically, we have 2 large French schools that came together to, business school and engineering school, to create a new curriculum around AI. And we are basically co-investing and sponsoring that. And we are also part of, for example, in France of launching the cybersecurity campus, a new cybersecurity campus to basically develop cybersecurity skills.So to be frank, we have a lot of effort in basically developing the skills that we need. I'm talking about the one we're doing in France, but we have some in India. And we'll probably develop as well some in the coming months in the U.S. to basically prepare the skills that we need to bring in. That, we're working on. And as you know, through the pandemic, we have taken very well -- very good care of our talent in terms of basically compensation, in terms of continuing to pay bonus, et cetera. And of course, that will play as well in a very positive way as we get up out of the pandemic.

[Amit B. Harchandani, Director & Head of EMEA Technology Research]

Okay. And secondly, if I may, you commented upon the geographic performance earlier and how some of your regions are making a comeback. And at the same time, you've also commented on the health crisis that's a bit -- coming up a bit in the near term. Could you give us a sense for how would you expect your geographies to evolve over the next couple of quarters? Which ones are trending better than you expected? Where is it where investors might need to show a bit more patience as you go through the recovery over the next, say, 1 or 2 quarters? And in that context as well, what kind of visibility levels do you have today versus history? Because the bookings performance was definitely solid relative to history.

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

Okay. So first, in terms of recovery, in terms of geography, I mean, when I look, I expect to continue to see improvement in basically our emerging geographies, right, Asia Pacific and LATAM. We start to see an acceleration, and I expect that to continue to be good. North America will continue to improve. Remember, we still have a transformation plan, basically, currently being deployed. And what I see from the bookings that we see in North America and when I see the perspective we have, I continue to see basically some improvement coming in North America. And in Europe overall, listen, I mean even if things are degrading, we're not back to March and April. There's 2 things. One, we are working from home, right? So there's no fundamental change. And a number of our clients have also adapted to that. So I don't think there'll be a knee-jerk reaction like we have seen in March, April in any case. So it will -- for me, it's not the fact that there will be degradation. At least this year, I don't foresee degradation. I see it's more the slope of recovery, right? How fast will France recover to become -- back to organic growth? It's going to take a bit more time because of the health situation, but I don't see a degradation. I see more a slowdown of the recovery than it is a degradation. So now we tend to say Europe, probably people will have to be a bit more patient in some countries like France potentially or Spain in terms of -- it's more the speed of recovery versus basically a degradation that we see today. Visibility is, to be frank, is pretty good. I think we are -- for teams, basically, demand is coming back to more normal level, okay, which basically is good for the upcoming quarters where we start to see improvement bit by bit. But we remain cautious because the depth of the health crisis can slow down, a little bit [ synced ] as we go into the winter. But it's not going back. It's basically continuing to improve, but it's more the slope of recovery which will slow down a little bit.

[Operator]

The next question comes from Mohammed Moawalla from Goldman Sachs.

[Mohammed Essaji Moawalla, Equity Analyst]

Just a couple of quick ones from me. We saw the cloud digital business back to double-digit growth in Q3. You sort of made the comments around cloud ERP being positive, also kind of with the hyperscalers. Can you give us a sense of how quickly you see this business going back to, I think, it was kind of mid-teens to high-teens growth that we saw pre the crisis? And then specifically, within the sort of digital cloud portfolio, what are the other areas? And where is the kind of customer demand right now that you're seeing kind of the strongest growth?And then the second question was, I remember as we were kind of entering into Q2 and as the health crisis hit, you also reminded us that you see a lot of opportunity for sort of wallet share or market share gains in customers. What do you see on that front? How does the pipeline look? And what are the opportunities? And when can we see some of the evidence of that sort of increased share of wallet?

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

Okay. Plenty of questions for me. Listen, first, on Digital and Cloud, I just said we are above 60%. So getting back to 20% growth rate, that means it will feel a pretty nice organic growth. I would love it. I don't know if we'll get back to 20% growth on the 60% -- more than 60% in Digital and Cloud. For me, I'd like to maintain the double-digit growth rate, which basically should end up -- should fuel a pretty nice organic growth. Can we get back to 20%? Maybe. But it might start to become a bit stretched, to be frank. But I remain confident on the fact that it continues to track quite a bit our growth in the future.Where do we see the strongest growth? Definitely, cloud, AI, analytics and cybersecurity are where we see the most traction today. Digital manufacturing or now Intelligent Industry, we see traction. It will pick up. But as industry at large, automotive, aerospace, et cetera, are big components in this Intelligent Industry. Of course, it's growing, but not growing at a normal pace, but we'll see the pickup in the coming quarter there, and it will become more significant overall at the group.The part where we have seen a bit of slowdown is some of the aspects on the customer front end. The growth rates remain healthy, but they are not as big as they are, for example, for cloud. And it's really cloud and cyber and AI and analytics are probably the big -- the strongest growth engine in Digital and Cloud today.Finally, on the -- last question was...

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

By planned market share...

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

On the market share gain. I mean I exemplified a little bit the vendor consolidation in Financial Services to explain what basically happened there. And we see, as I exemplified -- as I talked about it before, the 2 aspects: real vendor consolidation in terms of taking out potentially 1 player out of 4 or 5; and on the other side, the clients trying to basically reduce the number of small suppliers again if we consolidate because of the expansion of small suppliers in the last few years with the growth. So we see both.From my perspective, when I see the growth rate today that we have, in a number of cases, I consider we're already taking market share gains at some clients. Now it will take 2 or 3 quarters to exemplify in a more substantial way because you need to win deals, but then they have to build up. You need to ramp up some of these resources. But again, I take the example because I dived quite a bit with our Financial Services guy to see what's going on. When they see the ramp-up numbers they have in terms of headcount, I know that the growth is there. This is the market share probably.

[Operator]

The next question comes from Neil Steer from Redburn.

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

I think during the presentation, you called out the public sector in the U.K. and France, in particular, as being showing an acceleration in trends. In each of those markets, can you give us a sense for how big the public sector is? And can you talk a little bit about the kind of work that you're doing that's driven that acceleration in demand there?

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

Listen, the public sector, I mean it's, in Europe, it's above 10% in most countries now. I talk about Germany, Netherlands, France, et cetera. It's a bit big in the U.K., as you know, more in the 30s. And -- but right now, frankly, even in North America, our public sector is growing. It has never been the key focus, but we see good level of demand and level of growth and is becoming as well a focus area in some of our Asian countries.It's a lot of digital investment. It's a lot of public sector also moving to cloud. So we have a lot of project work around all the digital service to the population which are developing more and more. And I think it's increasing with the pandemic where there's a bigger effort in terms of investment to be able to reach out to people and to try, in a number of cases as well, to try to close the digital divide by enabling people to be able to have access to public services through a digital manner if they cannot physically move or have a hard time moving or at risk in terms of some of this movement. And I think that's what's fueling it.I have to be honest, I don't think it's specific to Capgemini. I see a number of our competitors as well who have healthy public sector and health, these are 2, in terms of growth rates. So I think, overall, there is a good environment and a good level of demand that we see in the market around the public sector. And it seems to be continuing now for the upcoming quarters.

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

Okay. And just a quick follow-on question, if I may. When you talk about, obviously, cloud, AI and cyber in general as part of the digital portfolio, have you had the opportunity to look into that and what you feel is work that's being carried out today by clients as a direct response to the pandemic and what is, if you like, underlying core strategic initiatives?

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

It becomes a bit tricky to try to decide what is accelerating what, to be honest. I do believe -- listen, fundamentally, I do believe the move to work from home, et cetera, is accelerating that because it's difficult to sustain the amount of demand in terms of video and others by basically not -- without moving to the cloud.So by definition, the fact that -- listen, people are struggling, for example, to run some of their factories. And the people who are able to run a number of activities, including maintenance, et cetera, did it remotely to support with almost no intervention in some factories remotely from central places. This command and control system, which seems to be working on now, they are definitely in a much better place than the people who need to have the footprint in the factory to be able to operate.So all of these are basically getting into people's mind that there is a difference between being digitally enabled with the cloud environment and not being digitally enabled. And it's pushing people to accelerate whatever they were doing because they really see a difference and the value of, basically, of the digital enablement, which requires as a fundamental cloud platform. It's basic to be able to be digitally enabled. I believe that's what's driving that. The cyber is also linked to the work from home. That's for sure. The increase in cyber is basically increased number of attacks because people are working more from home, and clients are looking for more prevention in terms of cybersecurity.

[Operator]

The next question comes from Laurent Daure from Kepler Cheuvreux.

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

Most of my questions have been answered. I just have 2 left is you commented on the engineering space of some modest improvement in the quarter. In 2021, you're going to have weak comps for most of the year. Is it reasonable to expect a return to growth for the full year or at least at some point during the year?And my second question is on the -- back to headcount. How do you see 2021 shaping in terms of wages, prices? And what kind of headcount addition on an organic basis are you planning at this stage?

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

Okay. So first, on engineering, I mean I would expect that we are back to growth at some moment next year. I don't want to bet on which quarter because of the heavy weight of some sectors like aerospace and engineering. So -- but by Q3, for me, we should be back to growth, and Q2 might be a bit early. We will see. Again, I really don't have some details around that at this stage. I think it's a bit early and speculative based on the slope of recovery. But definitely, I would expect us to get back to organic growth in the second half of next year in engineering.On how the '21 is shaping in terms of headcount, we are hiring right now. So we are basically -- we have slowed down a bit the pace in terms of the intake of young graduates, et cetera. But since September, we are basically increasing headcount. And I see -- our global platform is called India, and I see in India the pace of growth is basically picking up and the amount of recruitment is becoming very healthy. That for me is a good sign because that's -- our global central sign of the development of our business is India. Because when India grows, that means we have growth basically in many parts of the group. So I cannot give you a number, but the growth in number of headcounts, that will be growing next year.On salaries, prices, et cetera, to be frank, it's too early. I don't want to speculate. These decisions are made as we go into next year and look at the overall environment, client growth plans, et cetera. And it's a little bit early still, Laurent, to kind of speculate about this. But we start planning, but a bit early for me to comment.

[Operator]

The last question comes from Charles Brennan from Crédit Suisse Securities.

[Charles Brennan, Research Analyst]

I'll try and squeeze 2 quick ones in, if I can. Firstly, Carole, just to clarify on your margin comments. You gave us some levers, both negative and positive, for margins next year. It sounds like you've got an element of discretion over how you plan your margins for next year. If we see a return to positive organic growth for the year, do you think it's desirable to see margins expand? Or do you think it would actually be a good opportunity to hold margins somewhat flattish to invest into this accelerating digitization?And then secondly, can I just ask about big deals? It feels like some of your competitors have been a little bit more vocal about big deals returning to the market. Can you say anything about your win rates for bigger deals at the moment? And does that give you any cause for concern as you think about vendor consolidation?

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

I will answer the big deal, and then Carole will come back on the margin. Listen, on the big deals, we have been talking about it for -- since April, so I can repeat myself. But we definitely have an increase in terms of the big-deal pipeline. Vendor consolidation, transformational deals are part of them. We should be announcing some, of course, in Q4. And I'm pretty positive about that. The win rate is pretty good. I mean we lose some, we win some. But overall, for a big-deal market, our overall win rate for me is pretty good right now, and it should show growth into next year. So I'm pretty confident about that.

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

On the margin side, I mean to comment further, as you have heard, we foresee a return to growth starting in Q2. So the recovery of the growth will come the most important tailwind that we have in terms of margin, which is a better utilization rate and, of course, a better absorption of our fixed costs. So that's quite mechanical. So we have levers.And in addition to that, we have demonstrated that we have, at scale, been capable to be very agile. So we can adapt to the circumstances even though they are sometimes very abrupt. So it's -- and in addition to that, both short term and midterm, we've got the synergies with Altran. So of course, we are targeting an improvement of our margin next year with the recovery of our revenues, but it's too early to give any guidance anyway.

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

Sure. But the investment continues, and we're investing this year. We'll continue to invest next year. At this year, I don't feel the need to actually significantly increase the pace of investment; but if we need to, we will. But right now, I think -- it's one of the things we have preserved this year. Remember, when we announced the full year -- sorry, the half year, I talked about the smart cost management. The smart cost management was not to cut salaries increases, not to cut bonus payments, so continue to invest in talent and not to cut investment in new offering and new development.Thank you all. Thank you for that. And we look forward to talking to you now on 17th of February for the full year. Bye-bye.

[Operator]

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