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Teleperformance SE
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Ladies and gentlemen, welcome to the Q3 Revenue 2018 Teleperformance conference call. I now hand over to Mr. Olivier Rigaudy, Deputy CEO and CFO. Sir, please go ahead.
Good evening, everyone, and thank you for -- all for your presence tonight. We are together tonight to comment on the Teleperformance Group figures as of 30 of September 2018 that we just released. I'm hosting this call from the U.S. with our Investor Relations team connected from Paris. Quy Nguyen-Ngoc, our head of Investor Relations, has preliminary comments, as usual, to make before starting the presentation.
Thank you, Olivier, and good evening, everybody. Welcome to this call. Financial press release related to the first 9 months and the third quarter 2018 revenue has been released today after the closing of the markets. Dedicated slides are available on Teleperformance website in the Investor Relations section. As usual, Oliver's presentation will be followed by a Q&A session. A replay of the conference call will be available later on the group website. Today's call contains forward-looking statements that address our expected future performance, and thus, by their nature, address matters that are uncertain. These expectations are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For a detailed description of these factors and uncertainties, please refer to the section Risk Factors in our registration documents available on the group website. Now I'll turn the call over to Olivier.
Thank you, Quy. Before going in-depth into Q3 figures through the slides, I would like to highlight 3 key stage from this release. First of all, we are very happy with the strong growth recorded once again during the Q3. As we usually say for the 6 -- for the last 6 years, and we like this, is the 26th straight quarter in a row posting organic growth above 5%. Second, based on the strong performance, we are very confident of the business momentum in the coming months. As a result, we raised our annual revenue growth target from above 7.5% to above 8% on a like-for-like basis. Third, beyond 2018, we believe that group dynamic will continue in 2019 with ongoing systemic growth. As you know, it's too early to be more specific as we usually communicate on our annual guidance when we realize -- when we release, sorry, our annual literary next year, but we continue to invest in people and technology and develop business in new verticals, e-vertical, notably, to strengthen our leadership in an even more complex and digital environment. The starting successful integration of Intelenet, obvious value-creating prospective for Teleperformance group as a whole in 2019, especially in the banking and health care sector, especially in English language. Let's go now on Q3 and 9 months' performance in more detail through slides. So I'll start with the Slide 3. So group revenue amounts to EUR 1,076,000,000 up 8.3% like-for-like basis in the Q3 of '18. I believe it's definitely a solid performance confirming the strong dynamic recorded in H1, we showed the same growth. Thus, 9 months' revenue totaled EUR 3,143,000,000 (sic) [ EUR 3,146,000,000 ] up 8.3% on a like-for-like basis. On a reported basis, of course, growth was up 1.6% year-on-year, notably due to strong negative Forex effect. If we now move to Slide 4, which is the classical bridge that you know well, just to highlight this FX impact, which has been negative by EUR 191 million over the first 9 months year-on-year, mainly coming from the weakening of the U.S. dollar, Brazilian real and Argentine pesos against euro. Of course, FX negative impact in Q3 year-on-year was limited to EUR 21 million as the U.S. dollar starts recovering progressively during this period. Just also to remind you that dollar started weakening significantly against euro in Q3 2017. So we are going to see that -- to see this gap narrowing as the year goes by, especially on the Q4. So now looking to next slide, Slide 5, which is a key slide showing the full set figure related to the -- to our performance in Q3 and for the first 9 months. I just wanted to make 2 major statements. First of all, Core Services, which represent always 85% of the total revenue, continued to perform above expectation with like-for-like growth of around plus 9% over the first 9 months, supported by Ibero-LATAM and CME posting double-digit organic growth and EWAP recovering progressively along the year as expected. Specialized Services, 15% revenue, continued to perform well, plus around 5%, with LLS as the main driver of the growth. LLS is around 7%. However, TLScontact specific negative as temporary weight on the Specialized Services business since Q3 for technical reasons. On a general note, I'll come back later on that, but I am -- we are very confident on the performance of this division for the sales, either for the result. I'll come back later on but probably for this year, because you understand that the story came from TLS, TLS will record the best, I would say, figure either in volume and EBIT, either in volume, either in percentage.What is key to specify besides this set of top line figures ahead of our annual press release is that profitability momentum as of September -- end of September is on track with our expectation, both for Core Services and Specialized Services. That's something I wanted to make clear to you, we don't foresee any issue on that stuff. I don't want to spend too much time to comment region-by-region to left room for question and answer. But -- and you have the details in the slides, but I would like to highlight the following point. Let's move to Core Services and starting with, first of all, EWAP. So again, as we achieved, there is a pickup in growth compared with the start of the year. It's absolutely in line with what we said, mainly led by North America. We have been able to diversify client portfolio in the region in terms of vertical, mainly e-services, consumer goods, consumer electronics, energy and utilities are the most dynamic segments. In Asia, confirmation of the return to a solid pace of growth, underway since the start of 2018, driven by China and India. Of course, in terms of U.K., -- for the U.K., we are much more, I would say, looking to what could happen, potential clients held off on outsourcing decisions. Clearly, it's global on that month. It doesn't help to develop business. If we move to Ibero-LATAM, I would say, nothing more to say, that we made 14.7% like-for-like growth in the Q3 and 16.3% for 9 first months. So we had in very good growth in Portugal. We start development of multilingual hubs serving major multinationals. Both nearshore and domestic activity in Mexico and Colombia are well oriented, and we have a rapid ramp-up of our operation in the Peruvian market. So as a whole, the full region is at speed -- at full speed. More surprisingly, probably for you, despite the fact that it was clear early on, CEMEA is back on track. We have announced 14.3% like-for-like growth on the Q3 and for the full 9 months. Very good sales dynamic among multinational clients and a fast-growing local market leader in a wide range of verticals. We have a significant revenue growth in Greece, Egypt, Turkey and Eastern Europe. French activities are benefiting from the ramp-up of new contracts, notably energy and e-service and confirmed to the return of the satisfactory growth that started in the first half. Back to growth also in Scandinavia, in Germany and in Italy over the 9 -- over the first 9 months. So as a whole, the region is back on track. Now moving to the Specialized Services. I'm sure you are interested to that -- to hear about that. So LanguageLine Solutions is the main driver for the 9-month Specialized Services growth. It's still continuing to grow at the pace that we are waiting. TLScontact revenue growth has been impacted by a change in billing method for visa application process on behalf of the British government, UKVI. The impact, roughly, is between EUR 3 million and EUR 4 million this quarter. But as a whole, there is a positive momentum for TLS profitability. As I told that earlier on, we are going to achieve this year, probably, the best figure either in terms of volume and in terms of percentage of sales in TLS. LanguageLine Solutions and TLScontact account for main part of the Specialized division, knowing that there is another part which is the debt collection business, which is flat this year and doesn't help the growth of the division. But as a whole, we are absolutely confident on the level of the growth and profitability of this division, not only from '18 but also for the future. So if we want to finish with our targets, again, something clear, we are raising our like-for-like growth from 7.5% to more than 8%. We maintain our EBITDA margin above 13.5%. We do believe that we are going to deliver a strong net free cash flow. And we have, I remind you, consolidated Intelenet early October of this year. So as a whole, good quarter, good perspective either for the '18 and for the very start of '19. And I'm open for the questions now.
[Operator Instructions] We have one question from Mr. David Cerdan from Kepler Cheuvreux.
I have a few questions for you, if I may. I will start, first of all, TLS or Specialized Services. Just to be clear, so in Q3, you have reported 3% at constant billing method. Is it correct to think that the organic growth would be close to 5%? .
Yes, it should be 6.6%, 6.5%, something like that, yes.
6 point?
6.5%, 6.6%. But this will continue in the future.
Okay. And just to be clear for TLS, at constant billing method, is it up or down or flat in Q3?
It's just up but very little. But the profit is increasing significantly.
Okay. So it means that LLS is up between something like 8% to 10%, like-for-like, for LLS?
Sorry?
If we -- only for LLS, what is the organic growth? Is it something like 8% to 10%?
In channels, around 7%.
7% percent, okay. And I have a question regarding the EWAP region. It's only up 3%, so you said that it's positive in North America, in Asia, et cetera, and the U.K. is in decline, I suppose. So what is, at the end, the decline in the U.K. and the explanation in...
No, there is no decline. If you look the second of the figure, you had, in Q1, minus 1%, like-for-like for the region, plus 1.5% in Q2, plus 3% in Q3. So we are going to continue to grow in Q4, significantly. And it's exactly the path that we have announced. So the growth is back on track. You remember there was some business that has been moved from Philippines to Mexico, now, 18 months ago. There are some stuff that have been changed. So we have the Chinese peak business that is back on track also. Managing business that is going to grow. So there are some significant ramp-ups that are going on their way, and we are going to see, in Q4, a further increase in EWAP, as mentioned from the very beginning, on the year.
So the U.K. is not in decline?
No, not at all. It's not growing dramatically, but it's not in decline at all.
Okay. And just for the guidance. So you expect at least 8%. Do you -- so it means that you expect, based on the low end of your guidance, you expect a slower growth in Q4? What -- for which reason could we expect a slower growth in Q4?
I'm not yet to comment what is going on. What I'm telling to the market is that, based on what I know, we are going to be above 8% at least. As always, we will be careful, and you know that from years now. Of course, Q4 is a key area that is always difficult to predict. But clearly, we are sending to the market the message that this is robustly accelerating along the year. To what level? That's something that I don't know precisely as we speak.
We have another question from Mr. Nicolas Tabor.
I wanted first to have a better understanding of what is the change with the U.K. government with TLS, how this billing change impacts you exactly. Second question regarding China. You said that they -- it's back to growth, and it's ramping up. Could you elaborate on the situation there, and what has changed the -- versus the past quarters or even versus last year? And finally, regarding Ibero-LATAM. So you said you are at full speed. There is a slight deceleration versus last year, but it's 2 very strong years in terms of organic growth. What would you expect over the coming years and 2019?
Okay. So UKVI, when you go to buy it and to apply for a visa, there is a part which is a fee and part, there is reimbursement of some costs that are incurred by the client. So exactly what happens, so there are some costs that's now paid by the client directly instead of billing paid by the government on behalf of the applicant. So that's the way it works. But this doesn't change at all, finally, the figure, and it all -- and it will increase the results of the group. So frankly, just on TLS, I know people will focus on that. But clearly, on TLS, the growth is, of course, satisfactory, and the result is absolutely outstanding. And I'm not sure people understand what's happening, but probably TLS is improving its results in 2018, as usual, the following year, either in percentage and either in volume. So just be focused on the right thing. Second thing is, what's happening in China, I remember you that, in China, we were going more than double-digit, if I may say it, higher. So we came back to a growth which was 12% or 13%, which was considered as low last year. Now we are back on track on a bigger growth with new clients in the automotive industry but not only -- and we have developed new center not only in Mandarin but now in Cantonese. So we have been able to attract new clients on the source of China in Guangzhou. So that's exactly what we thought that could happen. It was exactly on -- we are on track, and it is exactly where we should -- where we are waiting to land. So this growth is going to continue in the fourth quarter, and we are absolutely confident. About the growth in Ibero-LATAM, I don't know whether the growth is slowing down from 17% to 14%. I believe they are reasonable figures, I may say. I do believe we are going to continue to deliver. It's too early to tell about '19. You have understood that we are working, as we speak, on our budget. But I don't see why this area, this division should not be close to double-digit figure growth next year.
We have another question from Mr. Edward Stanley from Morgan Stanley.
I've got 3, please. On the multilingual hubs, clearly, the growth there is excellent. And I just wonder, from a strategic point of view, what your long-term ambition is? Are you planning to build more multilingual hubs beyond just Greece and Portugal and a couple of other places? Is that the long-term strategy? Secondly, on wage inflation, are you seeing anything in the U.S.? And if so, how quickly can you renegotiate contracts to adapt to that? And thirdly, I'm presuming the Praxidia business is still very, very small in terms of revenues. Is that right?
You're perfectly right. Multilingual, first of all, I remember -- I remind you that we opened a new center in Malaysia last year. It's going full speed as we speak. We are thinking of a new center -- as you know, we have one in Egypt that could develop again. We might look to other solutions, especially in Greece, but it's too early to tell, and in South Europe, but it's too early to tell. But clearly, clearly, there are possibilities to expand this process -- this solution that we have sold so well, so far, either for Greece and for Portugal. So we are looking to other solutions. But wage inflation in U.S., I -- we don't see, I look to -- I don't know whether you read -- I read a paper about the wage inflation in the U.S. that was the growth that was -- experiencing in the country was not totally, I would say, reflected in the wages the -- in the wages. It was an economy that was written that in one of the French newspapers, showing that the link was less, I would say, close or solid than it was in past. To be frank, it doesn't impact. But again, again, the story is always the same story. So I'm speaking for U.S. You remember there are 3 types of clients, the ones that -- the contracts where you have a collar clause, especially in South America and also some other countries. But mainly, South America. The other, were you benefited from the devaluation of the currencies, especially North Africa, Egypt, Filipino, Mexico to a lesser extent. So we are able to monitor that. So the impact is mainly in developed companies -- developed countries, sorry, which is Western Europe and U.S. In U.S., as I'm sure you remember, we are not exactly placed in -- on the East Coast and in California at all. So we are much more in the center of the country. So there are some impacts and even Amazon increases salary. But so far, we are able to attract talent. So sometimes, we are able to increase the prices. We have not seen so far a reduction of the margin, because that's a question you raised beyond that. You have not seen that. Why? Because most of the time, you are moving, you are changing your product. What we are seeing is that the product is okay at that price -- price structure. But in the meantime, you have GDPR issues, you have security of the data, you have a lot of things that justify price increase that could upset a potential increase in wages. So so far, we have not seen and it is a reduction of the margin. But Praxidia, you're right. You're right. It doesn't help to increase our Specialized Services division. Today, it's much more the very start, the very beginning, so we are putting the team together. It costs money. It doesn't bring you a lot of upsell as we speak, but it will be part of a further future growth, especially in '19 and the following year. But we do believe that we have to invest in this consulting approach that will lead to better and higher business tomorrow. But you're right, it's not make figure today but, given the size of the group, it has little impact, of course.
Can ask one follow-up? Doesn't mean that the CapEx to sales of the group should increase to -- from that kind of growth in the Praxidia business next year?
I'm not sure Praxidia business will lead to a higher CapEx. It's clear that we are investing. As we speak, we are investing in new facilities or an improved facility just to follow the market, yes, to follow the rules that we are experiencing. And we are very happy with that. Yes. But it is not linked directly to Praxidia, it's linked to the business that we are able to attract in our different centers and in different divisions.
[Operator Instructions] We have another question from Mr. Patrick Jousseaume from Societe Generale.
I have 3 questions. First one is on Specialized Services. I struggle a bit to go from the 3% organic growth of Q3 to the 6.5% that you mentioned. If there is a miss of EUR 3 million to EUR 4 million on TLScontact -- not a miss but a restatement, sorry. I ask you to communicate more. So could you elaborate a bit on that first?
No. It's mainly the TLS impact. That's it.
Okay now, I -- just mentioning that EUR 3 million to EUR 4 million compared to EUR 153 million is more 2% than 3.5%?
No, it's true that, in the meantime, I was putting aside, so I should have mentioned, yes. Just I was putting aside the debt collection business that is not growing dramatically, at least, which is roughly flat. That's mainly the stuff. But what I just wanted to explain, that if you take LLS and TLS, which is 80% of the business, and if you take away this -- we have a growth, which is between 6% and 6.6% exactly.
Okay, it's very clear now.
We are like the value we get.
Okay. Second -- and on TLS, when does the contract with U.K. government does expire, please?
It has been renewed in August and it is now, again, for 6 years, if I'm not mistaken. I don't know if it's 5 or 6 years. We just -- we have just re-signed it in August, earlier this year.
6. On U.S., so you have, let's say, stronger growth starting in Q3. Should we expect this growth in the U.S. to, let's say, become even stronger in the quarters to come because you have started some new contracts and these contracts will gradually generate more revenue?
That is exactly the point.
And sir, on Intelenet. So you have now the control of the company for 1 month. Could you elaborate on any good or bad surprise? And also, on what is the impact of the, let's say, dollar strength versus Indian rupee?
So first of all, so we have absolutely no budget price. We have -- we are not surprised because we knew that this company has been perfectly organized and perfectly cleared. So we have been there -- most of the team has been there, either finance, legal and commercial teams. So we have a plan for integration of 60, 90 and 180 days, which has been set up. Clearly, we are absolutely, I would say, confident on the plan of integration. There are plenty of stuff to be done. The people are, as we speak, are together in different sectors. So the plan is very simple. We first starting to work, as I mentioned, on health care, on banking in English -- in the English language. And after, we'll move to other stuff. But that's to start with. Of course, depreciation of the Indian rupee helps. Don't dream, it's not going to change dramatically to a 2018 figure because most of the coverage we have done -- the hedging was done at that time. So clearly, the rupee that moved from 64 to 73, 74 exactly -- I don't know exactly, in 5 months -- in 6 months, helps the margin in the -- for the Indian business. No doubt about that. No doubt. So as we speak, as I told you, we are in the budget process, and we are, I would say, working on that to be able to announce you guidance at the time of the results early next year. But clearly, it's a good impact, yes, of course. Finally, when you think of minutes, the dollar -- positive dollar trend is positive for Teleperformance. Also not from the translation but also on conversion but also in terms of mix because of the good result from the U.S. division, especially LLS, will have an impact on our margin, of course -- on the group margin.
We have no further questions.
Thank you to all again. Thank you for being -- for listening this call. The IR team in Paris is ready to answer the questions you still may have. And we are delighted to have you on board and hope to be in touch with you in the coming weeks and months. Have a good night. Thank you. Bye-bye.
Thank you.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.