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Teleperformance SE
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Ladies and gentlemen, welcome to the Q3 Revenue 2019 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 your presence tonight. We are here together to comment on our Teleperformance group revenue as of 30 September 2019 that we just released. I'm hosting this call from Paris with the Investor Relations team, and Quy, our Head of Investor Relations, has preliminary comment 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, end of third quarter 2019 revenue has been released to the market. Dedicated slides are available on Teleperformance's website, in the Investor Relations section. As usual, Olivier's presentation will be followed by a Q&A session. A replay of this conference call will be available later on the group website.Today's call contains forward-looking statements that address our expected future performance and that, 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 document available on Teleperformance's website.Now I turn the call over to Olivier.
Thank you, Quy. Before going in-depth into Q3 and first 9 months of the year with the slide, I just wanted to -- I would just like to highlight 3 key messages of this release. First of all, of course, we are all very happy with the strong growth because it is, once again, during this Q3. With close to 14% like-for-like growth, this is the 30th quarter in a row posting organic growth above 5% that demands again the strength of our business model that allow us to beat this market growth on a regular basis.It is also the strongest quarterly growth, year-on-year, recorded since 2012. It rose in all group businesses. Core and D.I.B.S. and Specialized Service have accelerated in Q3. As a result, for the first 9 months of the year, like-for-like growth posted 11.5% versus 10.4% for the first 6 months.Second, this acceleration resulted from the successful deployment so far of the high-tech, high-touch strategy presented last month at the Digital Day in Santa Clara in the heart of Silicon Valley. This strategy aims to become a global leader in business service and integrative digital solutions. Our ongoing digital transformation to better address client demand goes with strengthening our organization and investing in business-critical areas such as cybersecurity and development of expert team specialized in data analysis and automation.Third, this strong performance allow us to raise our financial objectives for the full year in terms of sale from at least 8.5% like-for-like to around 10%. But as a way, mind Q4 is already difficult to predict, possibly a [ very farming ] reason, and this year, more demanding commerce especially in Europe but not only. Also in ex-Intelenet in India that was not part of the figure last year.We also confirm the 2022 objective we raised a few weeks earlier at the Digital Day, reflecting our confidence in the success of this transformation strategy.Let's go on 9 months, on Q3 performance, in more details through slides. Let's go through the Slide 3. Group revenue amounted to EUR 3.916 billion, up 24% as reported and plus 9% -- no, not 9% -- 11.5% on a like-for-like basis in the first 9 months of 2019.Third quarter revenue posted EUR 1.352 billion, up 25.6% as reported year-on-year and plus 13.5% like-for-like, making an acceleration compared with the first 2 quarters of the year. It's globally a solid performance, reflecting not only further growth momentum but also favorable comps in Q3 especially in some regions, Europe and Specialized Services.Let's move on Slide 4. I like this slide. I know all of you know him because it shows one of my key message on Q3 performance regarding the long-standing sustainability and strong momentum we enjoy today, 30 quarters straight in a row posting organic growth above 5% and the strongest quarter ever achieved year-on-year since 2012.Again, let's move on Slide 5. You will see the classical slide that you know, that shows the classical range explaining the growth component for the first 9 months. Of course, there is a EUR 65 million currency effect that is positive, mainly for U.S. dollar, and the big impact I would say in scope is consolidation of Intelenet since Q4 last year, with an impact of EUR 337 million, with like-for-like growth of EUR 368 million.If we move now on the slide per region. Before, I just wanted to put -- sorry, I should have started with Slide 6 to show you what is key for me in this slide. If you look to the Q3 first, the 12% like-for-like growth in English-speaking market, you remember that we started the year mostly and we grew progressively along the quarter. It is really visible in this quarter. And also, the growth of the Specialized Service that we mentioned to the market, that is growing now at 10.7% on this quarter. That are, for me, the 2 stats that need to be highlighted in this presentation beyond, of course, the good result of Ibero-LATAM that is, I would say, recurring and the good figure of Continental Europe, too. And I'll come back in the India and Middle East figure, which are, of course, limited in volume and limited in terms of size.So if we move now to the Core Service and D.I.B.S. in the English, Asia market -- English-speaking and Asia-Pacific market, called EWAP, we are here on Page 7, the figure that are also for the 9 months and for the 3 months. Of course, we are now 12% like-for-like for the Q3, giving us 7% like-for-like for the first 9 months. We saw the increased acceleration of the like-for-like growth, which was 2.8% in Q1 and 6.1% in Q2. So where does it come from? Healthcare, e-tailing, transportation service and logistics. Of course, offshore business from the Philippines and the numbers on America are really good.In Asia, the growth was mainly sustained by Malaysia since we opened a second multilingual hub for content moderation, the deep solution, dedicated to large social network. As far as U.K. is concerned, we are still declining revenue in U.K., to a lesser extent than H1, in an environment that is at least uncertain. A hard time to tell you what is going to happen in this country. I'm not the only one, I believe, to have this commentary.If we move to Ibero-LATAM, I would say nothing more to tell. The figures are speaking by themselves. Even if there is an acceleration in Q3 but it is, I would say, marginal. We have 16.1% in Q1, 16.2% in Q2, 18.5% in Q3. So we have always nearshore solution that are strong driver for the region: Colombia, Mexico but also domestic market in Colombia, Mexico and Argentina even if it was, I would say, swallowed by the inflation, which is roughly dynamic. Portugal remains an important source of growth, and operations in Brazil are satisfactory, notably in financial service and logistics. So all in all, of course, figures are different from country to country, but the global LATAM region is doing well.Let's move to Europe. Again, very solid sales performance among multinational clients and fast-growing local market leader, especially 10.8% in Q3, with 13.2% in the first 9 months. Of course, it is also worth mentioning, we have upped the capability of the group in Turkey -- in Greece, sorry, but also in Eastern Europe, in Turkey. Growth also. Synergy cap. We know that the comps expected in Q4 are very, very challenging. I remember you that last year of Q4, it was plus 18%, and clearly this is something that has to be beaten, and I do not believe that we are going to make it.If we move to India now on Page 10, I remember you that in the like-for-like figure here, you have only what we call the previous business with TP India, which is the Indian business that Teleperformance was doing before acquisition of Intelenet. So it's the last quarter where you have only TP India. So we have significant growth, as you can see. It's still small as a business. So next quarter, you will have the full business in India, including the Indian business with Intelenet. That has also good -- it has significant, I would say, comps to beat in Q4 even if there were not part of this figure last year.Specialized Service, and I'm sure it will please a lot of you, that we are, I would say, coming back to growth on Q3, which is 10.7%, like-for-like, which is mainly driven by LanguageLine Solutions and also by TLS. I remember you that we made 3.7% in Q1, 6.3% in Q2 and now 10.7%. Again, acceleration growth in LanguageLine and good growth also in TLS has seen to the progress in sale of value-added service. Clearly, the Q4 for TLS is less important, but growth is also good in this area. So good growth in specifically Core and D.I.B.S., good growth in Specialized Service, so what we say that -- we said that we are going to deliver an annual like-for-like growth of around 10%. We continue to guide the market on 20 basis points more in EBITA margin before nonrecurring item and with a strong net free cash flow that we are waiting for.Of course, on Page 13, we raised here the 2022 objectives that we just announced 15 days ago in Santa Clara, so nothing new. Organic growth at least plus 7% a year over these 3 years to come. That means EUR 6.5 billion excluding acquisitions. On top of acquisition, which is between EUR 250 million and EUR 500 million, we believe that we could be at EUR 7 billion by the end of the period, and again, with a 10 basis point increase every year, or per year, during this period.That's what I wanted to tell you about the figure. I'm, of course, open for the question -- we'll see -- I'm open for the question. So let's go for question, and I'm listening to you.
[Operator Instructions] We have a first question from Bilal Aziz from UBS.
Bilal Aziz from UBS. Just 3 quick questions from my side, please. Firstly, can you please break out the growth in Specialized Services between LLS and TLS, like you did in the last quarter? And tied to that, in TLS, can you perhaps break out between what is volume driven and new contract acquisition in the quarter as well? And very lastly, you comment on the ex-Intelenet revenues in India and Middle East, which were growing at a satisfactory pace. Perhaps can you give us an indication of the pro forma organic run rate for that division ahead of consolidation in 4Q?
Just to make it simple, LLS is growing faster than TLS, double digit. No, sorry, I made a mistake. TLS is growing faster than LLS, even if both of them are double digit. That's what I can tell you. You remember that in these divisions, there is still a business called AllianceOne, which is a debt collection business that is declining and still declining this quarter. That explains this figure. But TLS is higher than LLS in growth. Second question was linked to the...
Farming [ in India ].
Farming [ in India ]. I would say we are here at 50-50. Clearly, the [ farming ] will be higher in Q4 than in Q3, but we are roughly 50-50 from what -- big volume are coming from [ farming ], and much more coming starting October, November and December. So we are in the same trend of what we are seeing on a regular basis. As far as the ex-Intelenet is concerned, which is difficult now to follow because it's split across different regions, we are a little less than double digit in terms of growth. We will be less in this year, but knowing that the quarter of Q4 is going to be tough to beat, but we have good growth, solid -- good growth in this business too.
We have the next question from Edward Stanley from Morgan Stanley.
I don't know how many I got. A couple. If I understood you right, you said that the comp effect in CEMEA would be pretty hard in Q4, which suggested you think it's going to be down organically in Q4?
No, no, no. Not down. Growth will be lower, that's what I'm telling you.
Okay. And if -- I know you don't talk about margins on this call, but if we were to think about the 12% in EWAP, which I think came as a bit of a positive surprise, what proportion of that growth is coming from offshore versus on-the-shore?
I would say it's relatively flat from previous. So we have exactly -- from what I see, we have exactly the same trends that we had for the full year. We are ramping up. In fact, as we were saying last year, or end of last year, beginning of this year, that we are ramping up in the first half as mentioned especially in Q1 and growing the same way that we grew in term of percentage, in terms of breakdown, the same way in Q1 and in Q2. There is no major difference. The only thing which is different is that -- the only thing that makes a little difference is U.K. is a little less bad. Let's put it this way.
Okay. And finally, you made it sound at the beginning of the call like you're sort of slightly optimistic that the cash performance this year should be pretty good. I just wonder how much incremental CapEx you had to put in above what you previously expected in order to capture this growth rate in Q3?
In fact, that was -- we have announced at the beginning of the year that the CapEx will be in the range of 4.2%, 4.3%. I don't know exactly where I'm going to land but something around 4.6% and 4.7%. Maybe 4.8%. It's too early to tell. Because what's happening in Q4, there are a lot of CapEx that are done for next year. And whether that's -- so it's not really nurturing the year but they are nurturing the following year. I don't know whether they will fall in Q4 or in Q1 next year, but that's the reason why I'm less confident. But clearly, clearly, we -- the growth of the CapEx were mostly -- the growth were mostly done in Q1, Q2, and Q4 -- and Q3. Q4 is much more for next year. But I believe we might go to 4.8%. It's difficult to tell today, but something like that, yes.
Okay. And sorry to be a pain. I want to follow up to one of Bilal's questions. Are you able to give a number for how much AllianceOne was trading down this quarter?
Sorry, sorry. I missed it.
Are you able to give a split of revenues that AllianceOne now comprises within the Specialized Services division, or how fast it was growing negatively this quarter? I just want to understand how long you expect it to sustain.
I understand your question, but more than [indiscernible].
Okay.
I hope to -- we hope to be able to revisit that next year.
We have the next question from Nicolas Tabor from MainFirst.
So the first question would be on understanding the comparison base in the EWAP region as you have stated and the scope. You said that you don't expect really to see an acceleration in Q4. But would you still manage to keep the same level as you had in Q3? What's your view here? And how much of the U.K. situation is important on these estimates? And then also on the Specialized Services, comparison basis seems quite fairly okay. For Q4, do you expect to manage double-digit organic growth as what you see now, as you just said that you would hope to revert the AllianceOne situation and you see additional mix effect with TLS?
On EWAP, I don't know, to be honest. On EWAP, Q4 last year was the highest level because it was plus 7%, if I'm not mistaken. There are 2 effects that I don't know. U.K. isn't going to improve, I believe. I'm not saying it's going to decrease more, but I'm not seeing any improvement on that. And what I don't know so far today is the level of the [ farming ] because that's -- I have hard time to see that. So remember last year, I gave you the sequence of EWAP. It was plus 3% in Q3, plus 7% in Q4. So you more than doubled between Q3 and Q4. So it's just figures that are significantly higher in Q4. So I'm not sure we are going to deliver 12% in Q4 in EWAP. Frankly, I don't see that happening. Maybe I'm wrong, but it's too early to tell. But I would not bet on that. That's the first point.The second point, on Specialized Service. What I can tell you is that, again, that's probably just something which is difficult for me to predict because volume is linked, especially in TLS. And, again, it's also linked to the U.K. situation. I don't know whether Brexit will happen there or not, or it would become a tradition. We will be discussing that for years and years. As far as LLS, I don't see why they should not continue to deliver something in the same range. That's what I believe. So it could be a little less. It could be a little -- difficult to predict but that's -- and much more visibility on Ibero-LATAM, which is going to be good. Clearly, again, on these 2 stuff, but clearly that's what I see today.
And could I have another question, please? On the margin guidance, could we have a certain idea of what the pressure you have on OpEx from these investments that you're making. The one you mentioned on, obviously the D.I.B.S. new expert team and so on, to have sort of an idea of why you are able to raise the organic guidance but we don't see the effect on the operating leverage raising the -- not raising the EBITA margin guidance.
What we said -- so first of all, it's not a margin call. So I'm not going to answer in much detail. I know it's a [indiscernible]. Here we are speaking of [ prior to year ]. So first off, I'm not going to answer in detail. The market is made up of different stuff. There are some volume, I would say, mix effect or -- and there are different effects. There are also costs. So cybercop and stuff like that. So it's difficult to enter in details so far without having the right figure in details. So that's the reason why I don't want to enter on such a discussion.
We have another question from Patrick Jousseaume from Societe General.
I have 3 questions, please. First question, could you comment on the drop in revenue from D.I.B.S. on a quarter-on-quarter basis? Second question, could you confirm that there will be no more scope impact in Q3? And third question, regarding the organic growth calculation on Q4, I guess that the new base will include Intelenet. Could you elaborate on this? And does it change something that you have or not, Intelenet is a base to calculate the organic growth?
So on the drop you asked -- speaking of -- I have no specific figure, specific reason to tell you. I'm not sure it's something is -- that covers something that we have that is real. It's much more of a mix effect, probably. So I have no -- not precise on stuff to give you on that. This has to be explained. Clearly, there is no more scope effect in Q4. That's for sure. And then D.I.B.S., as I've told you, Intelenet, the Q4 of last year, that is not in the figure, are going to be -- are already very high. So I'm just stating that it's going to be...
So it was not in the base last year or in this year -- in the previous quarter and then it commenced in...
Exactly. Exactly. It commenced in Q4. That's what I'm trying to explain badly, but that is the story.
We haven't any more questions. [Operator Instructions] We have another question from Nicolas Tabor from MainFirst.
I had a short one. You mentioned in the press release that you were particularly interested in Specialized Services businesses for your target acquisitions. Could you remind us exactly what budgets you forecast for these potential acquisitions by the end of the plan? And besides this, so if you're -- rather looking into [ SM ] or more Internet-like companies, or rather Specialized Services-like companies and how your pipeline looks so far?
Okay. So we're looking for specialized service company, much more like that we have: the TLS, LLS and others. So I'm not -- so the idea of the size, so it's difficult to tell. I don't want to tell to the seller how much I'm prepared to pay. Anyway, PLE, we are looking for a business that, in terms of sales, could be between 300, 250 at minimum, to 500, 600 in terms of sales. So if you imagine that this business is delivering good margin because there is no -- we will never buy something that is not profitable, at least at the level of the group, maybe more, and give you some idea that make the figures significant. We have stuff in the pipeline. There's nothing new about the pipeline. You know our pipeline is -- we are receiving a lot of offers. Whether this will be happening or not, frankly I don't know. What I'm telling you is that we are seeing a different type of situation, and we are looking to them to see whether we can make a good deal and make a deal that match our strategy. I remember you, in Specialized Service, probably much more in U.S., with good figure. Probably -- not probably, with higher or at least at the level of the group ratio. And we don't want to have a pain in the meantime. These are the criterion that we want to achieve. It means that it's not so easy to make but we are looking from the different stuff. So that is all the question now?
We haven't any more other questions.
Okay. I just want -- as there is no more question, I would like to thank you for your participation to this call and your interest in our group.Again, this is a good figure. The question now is to -- is the future, as always. So we are committed to deliver good figures for 2019, of course, and 2020. We'll have a discussion later on, on that stuff, in the coming weeks.Thank you so much for your attention and your participation. Bye-bye. I'll leave Quy. He'll give you some detail.
Yes. We'd like to specify a few key information and dates. As usual, our new result will be released in late February or early March. Please note also that the documentation -- all the documentation related to the group's Digital Day held in Santa Clara on October 17 is available online on Teleperformance's website, at the Investor Day section, and the packet includes the presentations and the webcast of the events.Of course, as usual, Teleperformance will continue to participate at the end of the year to numerous conferences, other conferences, and we will be happy to see you there. Thank you.
Thank you. Bye-bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.