Good day. Thank you for standing by. Welcome to the Capgemini H1 2023 Results Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question- and- answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Aiman Ezzat, CEO. Sir, please go ahead.
Thank you. Good morning, thank you for joining us for this H1 results call. I'm joined today by Carole Ferrand, our CFO, and Olivier Sevillia, our COO. We delivered another solid performance in the first half. The revenue growth was 7.9% at constant currency to reach EUR 11.4 billion. The economic environment remained soft as expected, and 2023 is shaping up along the gradual deceleration scenario we expected for the year. Q2 with constant currency revenue growth of 5.2% is globally in line with what we expected. Bookings close to EUR 12 billion remain healthy, with an H1 book-to-bill of 1.05, reflecting a robust commercial momentum. The operating margin at 12.4% is improving by 20 basis points.
The shift in the project mix towards more innovative and value-creating offers more than offset the higher operating cost base. Net profit are up 21% year-on-year, leading to a 15% increase in normalized EPS. Finally, as anticipated, organic free cash flow generation was negative at -EUR 53 million. Now, these results put us among the leaders in our industry. Our revenue are now 63% higher than in the first half of 2019, and our profit more than doubled. More importantly, we are today recognized as the business and technology partner for our clients. Thanks to our strategic positioning, we can address the structural demand for digital and sustainable transformation and gain market share.
This first half demonstrates the strength of the positioning and how this is driving our resilience in a market which, as expected, becomes more challenging. To fully appreciate the level of resilience, it's important to keep in mind that 2023 comes after two consecutive years with growth of 18% in the first half. The areas of relative strength and softness in the market are the one we discussed at the beginning of the year, from that perspective, Q2 is an extension of Q1. Manufacturing and public sector remain strong, with a good fraction and double-digit growth in H1. In manufacturing, we clearly benefit from our leadership position in Intelligent Industry, in, for example, aerospace and defense or in automotive.
Conversely, on the consumer goods and retail and TMT, we clearly see a slowdown. As anticipated, the deceleration in financial services is becoming more visible in Q2. From a geographic perspective, Europe has shown clear resilience throughout H1. In Q2, momentum remained particularly robust in the United Kingdom and Germany, which were close or above 10% of growth. The North American market is softer, with revenue stable year-on-year in the second quarter. By business, Strategy & Transformation remains double digits, which illustrates the relevance of the market positioning we have. Also the importance placed by our clients on the more strategic and value-creating projects. Now, H1 is another semester with solid performance for the group, supported by the strong structural demand for digital transformation.
We have maintained our investment in our portfolio of offerings and in terms of skills as well, to continue to meet our clients' need for ambitious transformations. This is notably the case in Generative AI. To fully leverage the demand wave that will be generated by this breakthrough technology, we have announced today an investment of EUR 2 billion over the next three years. We witnessed a strong acceleration of client appetite for Generative AI. Recent report by our Research Institute found that expectations are both high in terms of value creation, but also, of course, in terms of efficiency. Capgemini is already a leading player in the Artificial Intelligence and data market. We have been driving over 20% growth for several years and have built a capability of more than 30,000 data and AI business and technology talent across the group.
Generative AI is not new for us. We have been working with clients on generative AI for the last three years, and we have successfully delivered already many projects, notably in life sciences, in consumer products and retail, or in financial services. For example, the group used transformer models to generate novel medicinal molecules for drug discovery and supported various financial institutions on quote, conversions for application modernization. We are now ramping up significant investment in generative AI, and as highlighted during our last earnings call, our Gen AI lab is fully set up and working with our clients to explore the now, but also future possibilities of Gen AI, combined with deep industry expertise. On the portfolio side, it's expanding very quickly, and this morning we launched four new family of offerings.
Our Generative AI Strategy offering enables CXOs to define and prioritize the most relevant GenAI use cases for their business. Our Generative AI for Customer Experience enhances customer experience with four dedicated Generative AI assistants. Our Gen AI for Software Engineering offering helps improve efficiency and quality across the whole software life cycle. Our Custom Generative AI for Enterprise offering enables enterprise who have sensitive data to have custom Generative AI assistance, fine-tuned with their key proprietary data in order to get maximum business value impact. Of course, we are building on longstanding partnership to accelerate solutions for our clients. In June, we launched our new global Gen AI Google Cloud Center of Excellence to develop a library of 500 enterprise-ready industry use cases. A few days ago, we launched our Azure Intelligent App Factory with Microsoft to maximize AI investments by getting them into production faster.
Big investment, of course, is in our people and portfolio skills. We intend to double our Data & AI teams to 60,000 within the next three years. Leveraging our global Data & AI Campus, the priority will be to train our Data & AI experts on Gen AI, which is in progress, of course, and our software engineers on the Gen AI development tools to ensure that we fully leverage the efficiency benefits that are coming from the technology. The training extends to all businesses, where Gen AI will drive benefits for our clients, such in BPO or in cloud infrastructure services. Ultimately, we aim to embed AI training as a key requirement into all of our development and training curriculum. Thanks to this significant investment, we are ready to support our clients through the Generative AI business journey.
The pipeline is already quite strong. We have hundreds of projects, including over 150 in Strategy & Transformation, reflecting the strong appetite and confidence of our clients for our value propositions. Just to take some examples, we are currently delivering a Generative AI content generation engine for production to assist marketing teams of a large consumer products group. Another example, we are developing a Gen AI engine for medical data understanding, search, and automated insights for a leading pharma company. We are also working on search engines based on Gen AI to increase productivity of customer relationship manager for a large retail bank with very tangible output. Finally, we also announced this morning that we are working with Heathrow Airport to elevate the passenger experience by implementing cutting-edge e-commerce and other passenger service solutions through Generative AI for Customer Experience offer.
Finally, we are working on a number of Gen AI strategy consulting assignments, which we cannot dive into detail. We confirm all our objectives for 2023, revenue growth of 4%-7% at constant currency, a 0-20 basis point operating margin improvement, and an organic free cash flow of around EUR 1.8 billion. Let me give you a little bit more color after this first half. In terms of growth, as discussed in the beginning of the year, the range we gave you corresponds to a gradual slowdown through 2023, with, at the top end, a re-acceleration in Q4, with the inflection point coming in Q4, and at the bottom end, a material degradation in the second half. We clearly don't see any of these extremes.
The U.S. market being a little bit softer than we expected, we now target to be around the midpoint of the range. On the operating margin, following H1, we remain comfortable with our ability to deliver the 0- 20 basis points margin improvement. Finally, on the free cash flow, we continue to target around EUR 1.8 billion, further illustrating our strong free cash flow conversion. This combination of growth and margin expansion in a decelerating market demonstrates once again that our resilience profile has materially improved and put us amongst the top performers. The underlying market demand in terms of digital transformation remains solid, and we are extremely well-positioned, which gives me full confidence on our medium-term targets, both in terms of growth and margin progression. Thank you for your attention, I now leave the floor to Olivier Sevillia, our COO.
Thank you, Aiman, good morning, everyone. Let's start with our revenues by sectors. Overall, as Aiman said, we start to see more contrasts among our sectors than during the last two years. As highlighted, the line of relative strength and resilience, as well as the sectors experiencing more pronounced slowdown, remains unchanged and further developed in Q2. More specifically, as said, manufacturing and public sector continued to deliver high growth in Q2. Not surprisingly, Tech, Media and Telco recorded a slight contraction during the period, while consumer goods and retail and financial services decelerated further. Let's keep in mind that overall, we gained market share in H1 in a tighter market. Looking at our bookings. Bookings reached EUR 12 billion in H1, which represents a 4% growth at constant currency.
This is a strong achievement since we had a very demanding comparison basis, with bookings up 22% in H1 last year. Our Q2 sales came with a solid 1.07 book-to-bill ratio, leading to a 1.05 ratio for H1. This is, again, a robust performance above our historical average. This is, what is very encouraging, frankly, is that our pipeline is up double digits year-on-year, and has reached an all-time high, which is unusual in a deceleration phase of a market. To give you a bit of color, there is a number of sizable transformation deals in Intelligent Industry, in SAP S/4, in data or cloud. We also see vendor consolidation deal opportunities in some industries. On the other side, there is some reduction in smaller discretionary deals, which is not surprising in a deceleration phase.
While the decision cycles remain longer in some industries, we see few of the large deals being dropped, which indicates a strong underlying demand for what we offer. Worth noting, the rate of deals shifting to next quarters has also stabilized. As you will now see, we have closed many exciting deals in Q2. Again, we classify our wins against our strategic framework, which proves the relevance of our framework. I would like to share a couple of remarkable examples of our most recent sales. In the Intelligent Industry category, Capgemini was selected by a large U.S.-based defense manufacturer to modernize how they schedule, plan, acquire material, and produce their incredibly complex products. This will help them to transform deeply the way they do business.
For this, we have combined our capabilities in advanced engineering and manufacturing methods, data acquisition, intelligence, connectivity, and IT infrastructure, a quite large example of our breadth of capabilities. Another example, in the data and AI space, BMW chose Capgemini to drive its autonomous driving development platform with our partners, AWS and Qualcomm. The validation of autonomous driving algorithms requires data from tens of millions of kilometers traveled. Capgemini will build and operate the data-driven development platform using Big Data and HPC technologies. Such a cloud-based platform will perform the massive parallel processing and simulations needed to address every edge case in autonomous driving. We are pretty proud of that. Thank you. I hand over now to Carole.
Thank you, Olivier, and good morning, everyone. Let me start with the highlights of our H1 results. Group revenues reached EUR 11,426,000,000 in H1, a reported growth of 6.9% and 7.9% at constant rates. Operating margin stands at EUR 1,430,000,000 or 12.4% of revenues, up by 20 basis points year-on-year. After other operating income and expenses, financial and tax expenses, which I will further detail in a moment, the net profit for H1 amounts to EUR 809 million, up 21% year-on-year. Normalized EPS stands at EUR 5.80, up 15% year-on-year. Finally, organic free cash flow is slightly negative, as anticipated, by EUR 53 million and in line with our roadmap for the full year.
Let's have a look now at our quarterly revenues. After two years of record growth, the more challenging macroeconomic environment led to a gradual slowdown in H1, in line with our expectations. Organic growth reached 4.7% in Q2, down as anticipated, compared with Q1. This brings our H1 organic growth to 7.3%, which is a strong performance considering the particularly challenging comparison base of 17.2% organic growth in H1 last year. Taking into account the group scope impact, the constant currency growth reached 5.2% in Q2 and 7.9% in the first half. FX turned into a visible headwind this quarter, leading to an overall negative impact of 1 point in H1. Finally, our reported growth in Q2 and H1 reached 3.2% and 6.9% respectively.
As a reminder, M&A should have add between 4.5 points and 1 point to our revenue growth in 2023, and we expect FX to represent a headwind to close to 2.5 points for the full year. Moving on to our H1 revenues by regions. The United Kingdom and Ireland region reported robust growth of 12% at constant exchange rates. This performance was mainly driven by public sector and manufacturing, consumer goods and retail, and financial services sectors. The rest of Europe regions remained very dynamic, with growth of 11.4%. This was mainly driven by manufacturing and public sector, while financial services, TMT, and energy and utilities continued to perform well. France reported revenue growth of 9.2%, driven primarily by strong growth in manufacturing, in addition to continued growth in financial services, consumer goods and retail, and public sector.
Revenues in North America reported a moderate growth of 3%. The manufacturing and services sectors were still dynamic. By contrast, the financial services sector reported limited growth, while TMT and consumer goods and retail sectors contracted slightly. Finally, revenues in Asia Pacific and Latin America region increased by 4.8%. This growth was driven exclusively by Asia Pacific region's momentum, now essentially organic, which was fueled by the manufacturing, consumer goods and retail, and financial services sectors. Q2 revenue growth by region is basically a prolongation of trends already at play in Q1. We still benefited from a robust momentum in Europe overall, as opposed to flat growth in North America and virtually the same in Asia Pacific and Latin America. Considering now our revenues by business lines.
Strategy and Transformation services posted growth in total revenues of 12.2% at constant exchange rates compared to H1 2022. This ongoing sustained momentum reflects the importance placed by group clients on most strategic and value-added projects. Applications and Technology services recorded solid growth in total revenues of 8.1%, while Operations and Engineering total revenue grew by 6.1%. Moving now to the headcount evolution. Our total headcount stand at 349,500 employees at the end of H1, slightly down by 1% year-on-year. This is also a bit lower than at the end of 2022. As discussed at the beginning of the year, after a period of high growth and high attrition in 2021 and 2022, the priority was to regain efficiencies.
The first benefits are already visible, notably in the utilization rate, which is trending up since Q2. The offshore leverage reached 58% at the end of June. Finally, attrition is further decelerating as planned. Last 12 months, attrition is down to 20.9% at the end of H1. Now moving to our operating margin by regions. The operating margin in U.K. and Ireland is remarkably stable at the high level of 18.4% in H1, flat year-on-year. In North America, our operating margin is slightly down by 30 basis points year-on-year, but still stands at a robust 15.2%.
Operating margin in all other regions are improving visibly, by 40 basis points in France to reach 11.1%, 70 basis points in the rest of Europe region to reach 10.5%, and 50 basis points in Latin America and Asia Pacific to 10.2%. Moving on to the analysis of our operating margin. We are pleased to see that our price and mix strategy is more than offsetting the overall increase of our operating cost base. Gross margin is stable at 26.2% of sales, despite the inflationary environment. The higher sales and marketing are more than offset by the operating leverage on G&A. Consequently, operating margin improved by 20 basis points in H1, in line with the 20 basis point improvement targeted for the full year. Moving on to the next slide.
Net financial expenses are substantially lower year-on-year, with EUR 22 million in H1 2023, compared to EUR 71 million in H1 last year. Interest income on our cash is increasing with the rising interest rates, while our bond debt is entirely at fixed rates. Income tax expenses decreased from EUR 327 million in H1 2022 to EUR 313 million in H1 this year. Our effective tax rate is down to 27.8%, compared with 29.9% in H1 2022, when adjusted for the tax expenses of EUR 28.9 million related to the U.S. tax reforms. Let's turn now to the recap of our P&L from operating margin to the net income. The other operating income and expenses are at EUR 29 million year-on-year, at EUR 262 million.
The increase in share-based compensation and restructuring costs was partially offset by lower integration costs for the period. Our operating profit is up 8% to EUR 1,151,000,000 , or 10.1% of revenues. After financial and tax expenses, our net profit amounts to EUR 809 million, up 21% from the same period last year. Consequently, the basic EPS amounts to EUR 4.70, up 20% year-on-year. The normalized EPS stands at EUR 5.80. This represents a 15% year-on-year increase on the H1 2022 EPS, adjusted for tax expenses related to the U.S. tax reform at EUR 5.03. Finally, a few words on the evolution of our organic free cash flow and net debt.
As you know, our cash generation pattern is highly skewed to the second half of the year. This year, our organic free cash flow is slightly negative in H1, as anticipated. As previously discussed, the higher operating margin is more than offset by the higher cash tax rate and some pensions one-offs. Additionally, the tighter liquidity environment is fueling pressure on working capital requirements. Leaving aside this one-off capital pressure, working capital pressure, our cash generation is up year on year by EUR 150 million. There were no material M&A transactions completed in H1, and we returned EUR 559 million to shareholders in H1, which corresponds to the 2022 dividend, as we had no buyback activity during the period. Consequently, the group net debt stands at EUR 3.2 billion at the end of H1.
This compares with EUR 4.1 billion a year ago and EUR 2.6 billion at the end of 2022. Considering our strong liquidity position, we redeemed at maturity on July the third, so after H1 closing, our EUR 1 billion bond loan issued in 2015. Aiman, back to you.
Thank you, Carole. To allow a maximum number of people in the queue to ask questions, may I kindly ask you to restrict yourself to one question and a single follow-up? Operator, could you please share the instructions?
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to your first question. Your first question comes from the line of Sven Merkt from Barclays. Please go ahead.
Great. Good morning. Thank you for taking my question. Last quarter, you said you expect to be at or above the midpoint of the guidance. Now it sounds like you're more expecting the midpoint of the guidance. What has changed? Then my follow-up question is on the headcount, which has been down 2% sequentially in, in Q2. Really the question here, what are the hiring plans now from here and the implications for growth for the second half? Thank you.
Morning, Sven. Thank you for your question. Of course, a very good question regarding the guidance. Yes, we did say we expect to be at the midpoint or above, and now we are around the midpoint. First, on the good news is that the resilience in Europe continues to be very good, and we, we see sectors like manufacturing and public sector still holding very well, and the positioning we have around Intelligent Industry is definitely fueling, you know, our growth in manufacturing. What has changed, I think, in our perspective, is that the U.S. market is a little bit softer than what we expected. We see more clients in cost-cutting in the U.S., and that basically has put a bit more pressure on the U.S. market. That, for me, is the main change.
It doesn't change the underlying trend because the pipelines remain strong. For us, it's just when the inflection point will happen, because the re-acceleration in the U.S. will be faster than anywhere else. Yes, a bit more softness in the U.S. market, that's kind of what has changed a little bit the outlook for the year. On the, on the headcount growth, you know, again, I always have this discussion with all of you around the headcounts. You have to read which headcounts as well, it's not just the overall number. I mean, here, the, the, the, the, the biggest reduction that we have is in offshore. I mean, we have a number of countries onshore where headcounts are still growing. What we have in offshore is not surprising.
You know, although, for example, our billing headcount is increasing in offshore year-on-year, we have a decrease because this is where we had the highest attrition and the highest growth, and this is where we have the biggest potential for optimization. The market being soft, we don't need to buffer and overload on headcounts, so we continue to give us opportunities to continue to optimize headcounts, even though we have continued to increase billable headcounts year-on-year. The outlook, you know, we'll resume headcount growth as, as we see basically more opportunities for growth. Right now, our, our, we are basically optimizing our headcount as we said for the year, and we're optimizing our overall operating model to be able to go in a, in a bigger athlete in terms of margin going into 2024.
Okay, very helpful. Thank you.
Thank you. We'll now take your next question. Your next question comes from the line of Frederic Boulan from Bank of America. Please go ahead.
Hi, good morning. Thank you very much for taking the question. Just a commentary around your pipeline. I mean, as you flagged, it's unusually strong. Still, we've had sequential revenue decline now for, for two quarters. Can you share a little bit how you see the kind of sequential revenue panning out in the next couple of quarters? And give us a bit more detail on how you expect that recovery to take place. Because, as you say, we have a, we have a bit of an unusual situation where, despite the revenue contraction and current bookings, pipeline is, is, is very heavy. A bit more color on that would be very helpful.
Yeah. I don't comment sequential revenue because for a simple reason, we have seasonality, it's something I don't comment. What I can tell you, one, we expect growth in both Q3 and Q4, and we expect them to have more or less the same profile. For me, we continue to grow this year, including in the second half, and we continue to grow in both quarters, which I think is important in terms of basically showing resilience, even in the softer environment, especially U.S. market, which is really softer than what we expected. For me, the fact that the pipeline is strong, it shows that it's just to hold up around clients' decision.
If I take a typical, you know, deceleration scenario, the pipeline, you know, shrinks bit by bit. We have to rebuild pipeline as, as the market start turning around and, and move back to, to an acceleration phase. For me, what is positive here is that the, the rebound could, could, could be quite strong as soon as we pass the inflection point. The only thing, and I, and frank, we have been open around that since the beginning of the year, that the inflection point could come in Q4 or could come, you know, in the first half of next year. That's, for the moment, what we don't, what we don't see happening for the moment this year. We still see caution from clients, which basically is delaying some of this large decision-making.
The scenario is pretty much what we expected, just a little bit softer in the, in the U.S. than what we had thought.
Thanks. If I can ask a quick follow-up on the previous question on the, on hiring. The kind of move to offshoring is reversing a little bit, understandably, because attrition is higher there, so it's easier. Once we move back to a growth phase, should we expect your kind of strategy to push offshoring to resume?
Yeah.
Then also, is it a, is it a question for, for OpEx? Because ultimately that has helped margin expansion, right? Does it put some pressure on OpEx?
Yeah. Two things. One, the move to offshore have not decreased because the billable headcount in offshore is increasing year-on-year. What, what is decreasing is the buffer we have, right? Again.
Right
In the crazy last two years where there was so much attrition, we were buffering resources on projects, on accounts. You know, I had to put additional people because I could not train people on the fly as soon as somebody would resign. When you have high attrition, you have high attrition on accounts, and you need to add additional resources that are pre-trained, you know, to be able to fill the job as people leave. This buffer we have, we can take out because now attrition has normalized, and it's at a low level, you know, it's half of what it was at peak. For me, I don't need to have this buffer on account. I don't need to have this buffer in pre-training, et cetera.
The only thing, I'm optimizing my resources in a market environment that should be softer, and I don't need to, to carry this buffer, because that's just additional cost and additional pressure on the P&L. As things restart in a soft market, we can reaccelerate very quickly in terms of growth. We have kept, you know, our, our young graduates pool, so we are training them, and these are the people who basically will, will support our growth as the, as the market start turning. We feel quite comfortable in terms of being able not only to address the growth trajectory when, when the inflection points happen, but to be able to scale the resources without basically, you know, blowing up our, our operating cost. I mean.
Excellent.
One of the good things is that we have anticipated the slowdown. This is when we started basically slowing down our recruitment since, you know, Q3 last year. That's what's enabling us to be able to be quite resilient.
Thank you very much.
Thank you. We'll now go to your next question. Your next question comes from the line of Charles Brennan from Jefferies. Please go ahead.
Yeah, hi, good morning. Thanks for taking the question. Can I just ask a couple of questions around AI? Firstly, you gave us a number of examples in the prepared remarks, but can you put some sizing around some of these contract opportunities? Are they just pilot exploration phase opportunities at the moment, or are they more substantial in size? And then secondly, when we think about the investment that you've highlighted.
Mm-hmm.
How do we think about that in the context of your margin aspirations going forwards? Are there any implications there for your medium-term outlook? Do you think now is the right environment to continue to target margin improvements? Thank you.
Both, both good, good questions, Charles so, on the first one, it's interesting how some of these are moving faster into production and into scale-up, you know? Compared to digital phase, I see with some of these is that after six weeks or eight weeks, we can move to larger projects. It doesn't mean there's gonna be 100 million projects. That's not what we're talking about. We move very quickly from box, if you want, or tests to production. You know, I talk about that case around how we helping a retail bank around all their relationship management, basically to be able to increase the productivity of the relationship manager. Frank, we started, it lasted a few weeks.
After a few weeks of box, the client now want to move that quickly to scale with quite a bit of productivity. What we see compared to, I would say, the digital phase, is these things moving into larger programs very quickly because we can scale up quickly, and the box tend to be shorter in terms of time. Same thing, we have been working with an insurance company in the U.S. around the software development life cycle. We have been working on different areas and different examples, and now we're gonna generalize that very quickly to the whole insurance company, basically, environment.
What, what we see is the, now it remains not huge projects for the moment, but we clearly see that the movement from POCs to production and to larger and to, in certain way, larger programs, is much faster than we had seen with digital. On the investment side, you know, investment for us is a lot of, is a lot around people, you know, it's skills, it's offerings, it's training. That, that, that's what we're investing in, in relationships, so in, in solution centers, in centers of excellence. This investment is productive because, you know, the high demand we see in generative AI, especially the impact it has in clients, is seen as being quite high value. This should be able to drive, you know, pretty good margin.
We continue to be comfortable with, with that, that, we will reach our 14% by 2025. We still feel comfortable around that.
Perfect. Thank you.
Thank you. We'll now take our next question. The next question comes from the line of Michael Briest, UBS. Please go ahead.
Yes, good morning. Just a follow-up on margins, but a bit more short term. You're obviously delivering the top end of the range at the moment. Given the sort of revenue outlook perhaps deteriorated a bit, are you gonna sort of be looking to optimize margins this year and, you know, do you think you're more likely to get to the high end of the range? The follow-up would be around the pricing environment. You know, you're not alone in seeing this deceleration, and demand weakening, and you talk about some vendor transformation deals or consolidation deals. Is there any deterioration in the pricing environment or are things quite steady compared to where they were at the start of the year? Thank you.
Okay, Carole, on the.
On the first one, on the margin side, as you, as you've seen, Michael, we have a very, very strong H1 achievement. Despite the strong pressure on inflation and despite also the embarked one of impact of 22 lateral premium costs, we have, we are achieving, you know, 20 basis point improvement. As Aiman mentioned, we continue to invest, so the price and the mix of revenues is continuing to play, its role, and it will continue in H2. We are, in the same process of, you know, with attrition coming back to nominal ranges. It's what we said at the end of Q1. We are now capable to focus on efficiency gains, with a smooth, a much more easier environment to manage on, on the field.
Globally speaking, we are confident in the full-year guidance we provide. I, I'm not guiding on H2, but we are fully confident on the, on our margin, you know, full-year guidance.
Okay. Olivier, on the pricing environment.
Frankly, overall pricing is holding well in our high value creation categories, which is a large fraction of what we offer in the market. Of course, there are some pockets of vendor consolidation, where pricing is a bit more challenged, but we have all the levers to improve productivity on what we, on what we sell later on in delivery. I'm not that worried about, about this.
Okay, thank you. The guidance obviously implies, if you do the low end, that margins will fall in the second half. Is that something you think is likely?
Yeah, I mean, again, it's just, you know, we, we are comfortable, we are comfortable with the margin guidance. It's, it's a 20 basis points, so it's not like we have 1 point of margin guidance. 20 basis points, Michael, so it's pretty tight. No, we are comfortable with the margin, with the margin.
All right. Thank you.
Thank you. We'll now go to our next question. Your next question comes from the line of Laurent Daure from Kepler. Please go ahead.
Yes. Thank you. Good morning. My main question is on your comment on the second half. Basically, you are alluding to roughly 2 points further deceleration. I was wondering, based on your comments, if you expect this deceleration to be broad or more concentrated, with a really weak U.S. over H2? My follow-up is on the two small areas where you had some weakness in Q2, which were Latam and Operations & Engineering. If you could give us a bit more details. I know it's small, especially for Latam, but you did a great job in past years. What is happening there? Thank you.
Okay. The first, the first question on the, on the deceleration from a geo perspective. You know, there's a deceleration overall. I mean, we cannot, but we see more resilience in Europe and definitely more softness in the U.S., you know. I think the cost-cutting exercises by some companies is definitely driving a somewhat softer market in the U.S., but the rebound would be as strong, you know, from my perspective. On Europe, the resilience is pretty good, but overall, you know, it's a softening in the market, you know. The perspective, the economic perspective being a bit softer, we see definitely clients becoming a little bit more cautious. As you know, this is not really at all Capgemini specific.
On, from a, from a color perspective on the, I mean, in, in Latam, it's a bit softer. I mean, we have one of our two region in Latam. We have, you know, we have South Latam and North Latam. North Latam is a little bit softer, linked more to one client environment, but, but we do expect that to, to start improving again by, by the end of the year and moving into next year. In the Operations & Engineering, you know, for, I mean, you have to remember that, that we, we, we, we focus in, in areas like cloud infrastructure service or other on transformational deals. As I some deal in this transformational deals, putting a little bit, bit, bit pressure on growth in this area, because some of these transformational deals, the decisions are a bit delayed.
They tend to be larger deals. That's what's holding up a bit, the growth in there. The engineering side, you know that you have definitely very strong growth in areas like aerospace, automotive, life sciences, and yes, there is softness in tech and certain extent in telco, right? Which for us, would weigh a bit more on the U.S.
Very clear. Thank you, Aiman.
Thank you. We will now go to our next question. Your question comes from Adam Wood, from Morgan Stanley. Please go ahead.
Hi, good morning, and thanks for taking the question. If I could maybe start with a follow-up to Charles question around the investment in AI and the margin target. EUR 2 billion is a fair amount to be investing. Could you just square the circle for us of still being able to hit the 14% in 2025, despite that investment? Is it over a longer period of time, are you taking money from other projects, or are you assuming that AI deployment in your business can drive efficiencies that will offset the money that you're investing? Just give us a bit more detail on that, that would be helpful. Thank you.
Sure. Adam, I mean, the, I mean, part of investment is basically is adding people. You know, if you're gonna double our headcount in data and AI from 30,000-60,000, that is part of the investment. This, you know, we're hiring people, we're increasing our costs, but this is productive investment. For me, it's investment that's gonna generate more revenue and generate more profit. You know, it is, it is not some cause that we're gonna, we're gonna recover over a very long period of time. A lot of it, some of it is very productive investment that generates revenue and profit in the very short term. It's not something that we have a payback over, over many, many years.
That's, that's helpful. Thank you. Maybe just, could you talk about the competitive landscape when you're bidding for these projects? Is it the moment that the deals are quite small, so where you're working with strategic partners, you know, it's actually not very competitive? Where I'm coming up from this is, I think you, you flagged before that the big differentiation on margins for you is where you've done a number of projects, and you start to productize and industrialize the offers [crosstalk].
Mm-hmm.
[crosstalk] head of competitors. Just interested to see where you think your offers are and, and how you're scaling up versus, the main peers.
Well, I mean, it's always when, when you scale up, of course, on the larger program, this is basically when you have the lift and the acceleration, strong acceleration, lever from a revenue and, and, and potentially margin. You know, at, at the front end, these are quite profitable because, you know, it's rare in terms of more resources. As you know, they're not very large, and clients are really in a hurry. I mean, the demand is extremely high in the market in terms of clients wanting to be able to quickly be able to get the benefits out, out of Gen AI. This allows to have pretty good pricing. We're not sacrificing margin or, or pricing on the, on this like that, because the demand today, from my perspective, far outstrips basically the, the, the available capacity.
So for me, it's pretty good business with good margins. Small at this stage, but as we scale up, I, I think it will, it will be quite, quite good from the group, including from a productivity. Remember, it, it's a, it's becoming a high investment area for the client because it's high returns for the clients as well. I mean, when we see the value it has around customer service in terms of speed to market, if you help, you know, a pharma company accelerate its, its, its drug development cycle, et cetera, the benefits for companies are, are so huge that basically they, they are ready to put the money on the table to be able to, to get quickly to the benefits.
I think this is what's a little bit different in this technology wave, and this is why we are, we are very, very positive around it and the fact that we are ready to invest a lot because we see really the demand and especially the very quick payback that clients can see in a number of these areas.
That's very helpful. Thank you.
Thank you. We'll now go to your next question. Your next question comes from the line of Mohammed Moawalla from Goldman Sachs. Please go ahead.
Yes, thank you. Morning, Aiman, Carole, Olivier. I have two from my end as well. Firstly, just in terms of understanding the regional dynamics, clearly the U.S. has softened, as you said, more than you expected. Is there kind of flattish still a kind of? Do you think it could deteriorate further? I know you've said in the past, I mean, for the group, you still expect kind of positive growth, kind of in the cycle at the low point. Just trying to understand that, and is it worse behind us in the U.S., or could we kind of be at these levels for a bit longer? In that context, what gives you the kind of confidence that the resilience in Europe can continue? I know there may be mathematically still some deceleration, just trying to understand those dynamics.
The follow-up is really around, you know, the kind of headcount growth. So to the earlier questions on AI, if you're sort of talking about more kind of front-loading some of this, this hiring, how should we think of the kind of linearity of the margin, over the next couple of years? Thank you.
Okay, on, on the dynamics in the U.S., I mean, the U.S. market will soften further in H2, so not committing at all the fact that it's, it's, it's gonna remain flat. You know, we said we'll continue to grow at, on the, when, when the cycle slow down at the group level, you know, in commit that every single geography, English, single country, every single business will continue to grow. I, I think we're still in a growth mode in, in H2, which is quite positive, you know, both in Q3 and Q4. The U.S. will continue to soften a little bit before it rebounds. What we look at it really from a, from a global diversification, you know, we, we have our business.
I mean, like, take a business like Japan, it is growing way above 20%, which is great. We, we have this global diversification from a geography perspective, from a business perspective, you know, from a, from an industry perspective, that's giving us that resilience. Again, remember my comment, even in the U.S., even in, in engineering in the U.S., our manufacturing business is still growing, you know, at, at 13%, 14%. It shows that there's a question around market, there's a question around industries, there's a question around, around business line, and this is why the, the diversification we have from a portfolio across many aspects, that's what's building more and more resilience in terms of our business. On the hiring and the margin, you know, I, I do, I mean, again, right now we're targeting to improve margin both in 2024, in 2024. Right now, we're not talking about back ending, you know, the, the margin to get to 14% in 2025. We, we manage our economics pretty well. We're managing our ramp up and investments pretty well. As I say, we're doing investment because it is productive and will help generate more revenue and profit versus, you know, investing and hoping for the best in, in coming years. We, we still on a trajectory that will continue to improve margin, both in 2024 and 2025.
Great. Thank you.
Thank you. We'll now go to our next question. The question comes from the line of Toby Ogg from JP Morgan. Please go ahead. Your line is open. Hello, Toby, is your line on mute? Hello, Toby.
Hey. Yes, hi, morning. Thanks for the question. Couple from my side. Just, just on coming back on the U.S. market, I mean, you mentioned there, that, that you expect the U.S. market to continue to soften in, in the second half. I guess, question here is, you know, what gives you the, the confidence that you've built in enough softening that sufficiently accounts for any potential, further weakening on the, on the cost-cutting dynamics in the U.S.? Then, and then secondly, just, just for Olivier, actually, just on your comment earlier, that the rate of deals shifting has stabilized. Could you just give us a little bit more detail on that point specifically? Is that, is that across the whole group? Is that in a specific area? You know, what's driving that stabilization, and, and when did you start to see that?
Thank you.
Okay. On the, li sten, on the softness, remember, I mean, we, the shift we have is not very large. It's just a little bit more softness in the U.S. We knew the U.S. market would be softer this year, and we anticipated it. We expected more resilience in Europe, so the scenario is pretty much playing like we expected. It's a bit more softer, you know, because some of these, some of the aspects and some of our mix in the U.S. is also not favorable. For example, in terms of telco and tech, in terms of financial services, you know, of course, exposure to U.S. financial services market.
I mean, that's what's driving a bit more softness as well in the U.S., because some of the verticals, which are big for us in U.S., are also, you know, softer. It's a combination of the two. I think we have pretty good visibility on the business for the second half, and we are pretty confident in terms of, well, you know, what we give you in terms of guidance. From a cost perspective, you know, we are pretty flexible and agile, and we have anticipated already, as you have seen in H1, the softness, and we have already anticipated, basically, the adjustment that we need to do to ensure that we deliver the right margin in the second half. Yeah. Olivier, on the deals.
Before answering specifically to the, on, on the U.S. or geographical nuances that I may see, if I step back a bit, indeed, the pipe, as I told before, has grown double digits year-over-year, and it's atypical for a deceleration phase. You know, I've been three decades in this industry with Capgemini, where I've seen many deceleration and acceleration phases. What is really striking this time, is that, okay, softness in discretionary spend is well, like in previous deceleration phases. What is not there is that clients are not dropping deals. They are just shifting deals quarter after quarter for some clients, and it's more, more pronounced in the U.S. than it is in Europe.
Which makes me think that clients are on wait and see mode in some particular industries, but they are not on the bench, they are on the starting block, waiting. To some extent, when the tipping point will happen, maybe Q4 is a bit too early, I think the demand will, will resume very strong, because the fundamentals are, are there. It's all about how do we handle the next two quarters? The pipe in the U.S. is, has grown as well compared to last year. The shift is not materially more than, than in Europe on clients, I believe, are on the starting block, waiting.
Okay. Thank you all. This was the last question, so we look forward to seeing you and interacting with you over the coming, t he upcoming question, well, this was the last. This was the last. Okay. Thank you all. Looking forward to interacting with you over the coming days and weeks. Have a great day. Bye-bye.
Bye-bye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.