Ladies and gentlemen, welcome to the Teleperformance conference call. I now hand over to Mr. Olivier Rigaudy, Group Chief Executive Officer in charge of finance. Sir, please go ahead.
Good evening, everyone, and good morning for those who are based in the U.S. Thank you for your participation to the webcast. We are together tonight to comment on the Teleperformance Group results at the end of June 2019, which are joined this release. You may have received the press release at the closing of the stock market today. As usual, my presentation will be followed by a Q&A session. I will present H1 result from Teleperformance in English. Slides are available through the webcast and online on the corporate website. A replay of the webcast will be available online tomorrow. Connection details are included in the H1 press release. Today's presentation contains forward-looking statements that address or expect your future performance, 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 naturally from those described in the forward-looking statement. For a detailed description of this factor and uncertainty, please refer to the section of risk factor in our registration document available on our corporate website. Okay. Let's start now with the key facts and the key figures for the first six months of the first year, 2019, the first half-year 2019. We'll go deeper later on, activity region by region, and finish with the 2019 final outlook. That was the major figure of the first half. I do believe that the first half was very solid in all of our business in terms of revenue, profitability, and cash.
That's probably the main point that I just want you to get in mind, is that we are good in sales, margin, and cash. I'm very happy to announce that. We benefited from our dynamics on the market, and we took also advantage of the benefit of a strategy that we have implemented for the beginning of the year, especially through the deployment of digital solution that we are working on for now some months. I do believe that this is a key factor for differentiation that partially explain the strong growth of our business in the first half, and the acceleration of this growth between Q1 and Q2.
We are also pleased with a very significant increase in the EBITDA, which is beyond an accounting effect of IFRS 16, on which I'll come back in a minute, and shows that we are progressing also in terms of profit. At the same time, and I'll come back also later on that, we continue to strengthen our financial structure with operating cash flow, which grew at the same pace as our business, illustrating the management discipline that we are demonstrating since some years. If you look now this figure, we reported a 23.9% growth on a reported base, which a 10.4% like-for-like growth for the first half. More interestingly, this has been achieved with an acceleration in Q2. The Q2 like-for-like growth was 10.9%. The increase in EBITDA margin is significant, from 11.9% last year to 12.8%.
Out of this 12.8, you have to remember, you have to note, that 50 basis points are coming from the implementation of the new rules, that on which I'll come back later on, which is IFRS 16. Despite that, we have grown by 40 basis points in H1 on a pro forma basis. The diluted earning per share grew by close to 19%, even if this growth has been reduced by the impact of the IFRS 16. I'll come back later on that, too, showing a significant growth anyway. We have been able to develop a good cash flow, which is growing to EUR 172 million at the end of the first half of this year. We are very pleased with this result. They are showing a significant growth, a significant improvement of profitability, and a better cash flow.
What has to be mentioned, too, also, is in the meantime, a lot of stuff happened during the first half. We had significant increase in number of workstation. We increased our operational footprint by close to 13,000 workstation in each one, notably for new site and for expanded site. As you can see on this slide, it's also in U.S., but not only in this country, in a lot of country, in Colombia, Portugal, Greece, Turkey, India, and we expanded site also across the world. I just wanted to highlight one point which is important. Last year, for the full year, we increased the workstation by 12,000 amounts. 12,000 workstation for the full year. Here, I know it's particular, and I'm not sure we'll double that this year, but we increased our number of workstation by 12,000 in the first half.
Significantly higher than last year. Of course, we have for the first time the consolidation of the Intelenet activity that we bought last year in H2 2018. We have the worldwide development of the DIBS digital solution. I remember you, DIBS is Digital Integrated Business Services, which now represents 20% of our revenue, which is interesting to notice. The digitalization of the world of business of client portfolio continue to grow, which is now 22% of our group revenue versus 19% at the end of last year and 13% years ago. Developing new station, first consolidation of Intelenet, new development of DIBS, and development of digitalization of client. Of course, we have two other issue. One is the new IFRS 16, which is a norm that we are obliged to follow. The second one being, the new presentation by linguistic region, following the acquisition of this business.
First half result. That are the results. Just before I comment the result, I just wanted to explain you what we have been obliged to do. We have, following the new standard of IFRS 16, which oblige us to recognize an asset on the balance sheet, linked to the rents that we are going to have all along the different years, but also different regions that we could have, and record the linked expense between interest and debt repayment. That is exactly the rule that we have to follow. What are the impact on the P&L? We have put that on the right side of the slide.
To make it simple, you have to understand that we grew, or we are obliged to have an impact, which is EUR 10 million more EBITDA, minus EUR 20 million in financial charges, which is less net of tax, it's minus EUR 7 million at net result level. That is a global story of the impact of the IFRS 16 on our first half figures this year. Of course, there is another stuff which is important to mention, is the fact that net debt grew by EUR 688 million following this new disclosure. That's somewhere, not a financial debt, if I may say, but it's a new debt that has been recorded in front of the assets that we are going to amortize or during the life of these rents. Come back to the figure. 23.9% like-for-like reported growth, 10.4% in growth.
EBITDA is now 12.8, 12.3 if you take out the 50 basis points coming from the IFRS 16. Net profit that is growing by EUR 22 million to EUR 145 million, less EUR 7 million, including the deduction of EUR 7 million from the IFRS 16. Let's move on to understand what is behind that. First of all, the growth. There is a positive currency effect, which is mainly dollar, which is above $48 million, but there are some negative figure. We have a positive effect on the dollar, on translation effect on the dollar, that is FX, which is $48 versus last year. You have the growth of 10.4% that I just mentioned a minute ago, plus the change in scope, which is consolidation for the first time of ex-Intelenet figure.
I just wanted to show that finally, if you look figure to figure, we are growing by a little less than EUR 500 million in the first half of this year. We had EUR 2,070,000,000 last year to EUR 2,564,000,000 this first half. I just wanted to remember that this figure for half year was roughly what we announced in 2013 or 2014 for the whole year. More interesting is just to have a look to the diversification of our portfolio. For the first time, the telco or so-called telco business is below 20% of our sales, 18% of our sales. Despite the fact that they are even growing, still growing in the first half, but we are growing significantly more in other sector. We pointed out two specific vertical. One is transportation and logistic, and the other one is media and entertainment that are beyond 4% on this first half.
I do believe this will continue all along the year. As far as digital economy, we have, as I told you just before, moved dramatically over the last five years from 5% of the sales to 19. This growth is continuing in the first half and even accelerating because we are at 22% as we speak for the first half. Again, this growth will continue all over the year. Let's move to a more detailed explanation region by region. I just wanted to stay a minute here just to tell how we are happy with the figures that are shown here. I'm sure you remember, most of you, that we had exceptional performance in Ibero-LATAM and in CEMEA. This in Q1, this is continuing. We continue to deliver very good figures, 16% or 14%. This is clearly exceptional.
What was the main question that you had was the fact that the English-speaking market and the specialized service division were less growing. In fact, they are growing back. They are back to a normative growth. The EWAP world is now growing at 6.1%, knowing that, and all of you know that we have a bad or difficult momentum in U.K. That means that the growth of the North American business is higher than the one that is shown here. You have the specialized service that is back to growth again at a normative level. That's the reason why we're now accelerating our growth despite the comps which were difficult to beat in Q2. I just wanted to remember you this point.
Not only we have the two engines that we are doing well in the first half that continue to do well, the two other engine that could have been considered as weaker are now back on track, that generates this growth that we are seeing today. We move to margin, we have the same impact. I just wanted to say that as far as the IFRS is concerned, you have an impact of 50 basis points in all the core service division, while it's 30 basis points only in specialized service division. It's because of the nature of the rents that are significantly higher for our core service and DIBS than for our specialized service. If you take that out, you see that wherever you go, you have an increase except in the Iberolatam. It's not a surprise.
Out of the 12,000 new workstation, half of them have been ramped in Iberolatam. That's in Portugal, Colombia, Brazil, Peru, and Mexico. That is the reason of this potential, with a small reduction of margin, excluding IFRS 16, while being at a very high level, still being at very high level. You see that the English World is back on track. You see that the Continental Europe continue to grow in H1, and the India and Middle East also take advantage of the first consolidation of the ex Intelenet business. Finally, I know there was a question about the sustainability of the margin of the specialized division, especially on LLS. I hope this figure will show you that despite the 30 basis point coming from the IFRS 16, that we are able to increase the margin either in TLS and either in LLS.
Let's go back in more detail in each division. English World. Like-for-like growth accelerate sharply in Q2 to 6.1%. We continue to recover in North America with e-tailing, healthcare, transportation service, and logistics. While we have a decline in revenue in U.K. with a global gloomy environment, which is difficult to predict. In Asia, we have a growth mainly sustained by Malaysia with the recent opening of a second multilingual hub in Penang. Consequently, the margin was increased to increase by 100 basis points. We are happy with that. You know that the second part of the year is key, but it shows that we are back on track in the EWAP world. If we move to Iberolatam, I would say little to say that I've said before. 16% in Q1, 16% on H1. Again, everything is growing significantly in Iberolatam.
Maybe a little less Spain, it's a small business. Colombia, Mexico, Brazil, Portugal, everywhere we are growing significantly. This is going to continue all over the year. I don't know at what pace exactly, but significantly again in this division. Margin remain high. As I told you, we have new major sites that are going to open, that are starting to open in Q1 and Q2 and will continue to open in Q3. That has a small impact on the net margin. We are gaining significant market share in Latin America, and again, it will continue. Back on track, Europe, 14% growth, whether it's Q2 or Q1. Of course, you have the fast-growing market leader, which is Greece, Eastern Europe, Turkey, that is back on track also.
The French people, the French-speaking market continue to perform better, and we are going to make money, including the offshore business in France, in the French-speaking market. As a consequence also, the margin is increasing 200 basis points. If you strip out the IFRS effect, we are at 150 basis points for the first half. Again, we are good on track. Middle East, as far as sales are concerned, it's difficult to explain that because what you see here is only TP India, the previous TP India that is growing. The growth will probably We'll reduce all over the year until we pass over the fourth quarter with Intelenet, because here you have only the TP India business that opened a new site last year in Q1 and developed, ramped it in Q1 and Q2 and partially in Q3. The growth will reduce.
The like-for-like growth of TP India will reduce as the year goes by. The full results are perfectly online with what we had in time. Ex-Intelenet business is also growing at double-digit, as mentioned, as a schedule when we make the acquisition. Specialized service. Significantly acceleration in Q2, 6.3% versus 3.7% in the first quarter. Back on track for our LanguageLine Solutions. Back on track also on TLS, which is developing its sales, especially in value-added service in U.K. You remember it was an issue last year, and people were questioning about the way we computed that. We are now benefiting from that, and I do believe this will continue all over the year. In term of margin, I mentioned it earlier on, we have very good margin.
Again, we took advantage of the development of the video in LLS and the added value service in TLS U.K. Achieving this margin of which 30 basis points are coming from IFRS 16. If we look now to the other part of the P&L, little to say. You have only one thing. What I just want to mention is about the others. That is EUR 5 million this year versus EUR three last year. It's the end of the cost of rebranding across the group. You know that we changed our branding last September. We did half of it, half of the group last year, now it's over. It has been finished in end of April, it is the last cost that we are going to incur in this area. If we move now to the level of the other part of the P&L financial result.
Of course, you have EUR 21 million here coming from the IFRS 16. That was not existing last year. If you strip out this EUR 21 million, you compare the EUR 19 million of last year to EUR 26 million. Out of the EUR 26 million, in fact, you have less foreign exchange gain that we had last year. That means that the financial charge, the cost of interest is exactly the same than last year. It is EUR 20 million versus EUR 19 million, while we have EUR 800 million more debt. It shows that we have been able to manage the cost of the debt at a good level. About the effective tax rate, there is an increase. It's mechanic. I believe we will stay there around 30% by the end of the year. Is the fact that we now have Intelenet and all the Indian business that is coming in our scope.
Remember that the corporate tax rate in India is 36. If you take in account really the effective tax rate, that mean avoiding taking account the things that are non-deductible, you are much more closer from 45. That's the reason why we have such an increase in the effective tax rate. Net profit, EUR 145, as I mentioned earlier on, 18% growth. Not only we're happy with the growth, not only we are happy with the result, but we are happy also with the cash flow. The cash flow has grown significantly, free cash flow to EUR 172 million coming from EUR 156. While in the meantime, we have been able to limit the change in working capital to EUR 13 million. I just want you to have a look to the EUR 13 million versus the increase of the sales that we had over the first half.
I mentioned earlier on that we had roughly half a billion of increase of sales. That generates only EUR 13 million needs in terms of working capital. I think it's something that I just wanted to highlight, showing that we are having a clear end on the cash disbursement. As far as capital expenditure are concerned, we stay at the same level of 3.9 versus last year, as the sales are growing, we are now over EUR 100 million to EUR 100 million and one, to be precise. Little to say about the balance sheet. I just put it because it's interesting. You see the debt increasing because the impact of the IFRS 16, there are little to say, the level of the U.S. dollar is roughly comparable from the end of last year at the closing date to this half year.
I just wanted to give you the information. More interesting is to show what happened on the cash. I strongly believe we are going to be able to deleverage quickly this business. If you look precisely, if you take out IFRS impact, which is EUR 688 million, you see that the debt is flat, while we have been able to pay the dividend, EUR 111 million, to make some financial investment, especially in minority interest and in shares, and to pay EUR 100 million of CapEx. The second part of the year will be generating cash only for repaying the debt. I do believe it's going to show a significant decrease in the second part of the year. Not only we have a low average cost of debt, I hope to be below 1.7 at the end of the year.
The free cash flow generation is such that we believe that we will be around 2 times EBITDA, excluding IFRS impact on net debt by the end of this year. We have been able to get confirmation of our triple B minus rating and a stable outlook, despite the fact that we bought Intelenet last year. We change our guidance, and we say that general like-for-like for growth could be at least 8.5%, and we know an increase of at least 20 basis points in the EBITDA margin before non-recurring item. Most of you are going to tell me you are shy. You should be better because you have done 40 basis points in the first half. You should be better in the second half.
There are different reasons for which we believe that we are going to have a good year, but I'm not sure we will make 40 basis points in the second part of the year. The impact of the U.S. dollar will reduce in the H2. You will have less impact of Intelenet because it will be only three months versus six months, given the fact that we consolidated Intelenet in the last quarter. I do believe that despite the improvements, the pace of improvement of CEMEA will be probably, not decreasing, but reducing. That is the reason why we believe that we should be at least at 20 basis point and no more. We believe that we are going to deliver a strong net free cash flow to repay the debt. That's what I just wanted to explain you.
I'm, of course, available for any questions that you might have.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero one on your telephone keypad. Our first question comes from the line of Bilal Aziz of UBS. Please go ahead. Your line is open.
Good evening, everyone. Three quick questions from my side, please. Firstly, can you give a bit more detail around the growth split between LLS and TLS, please? Secondly, in TLS, you clearly flagged a small pickup due to value-added services in the U.K. contract. Can you perhaps talk a bit more about the pipeline there? We know there's a few material contracts coming up for tender and perhaps a role you're hoping to play within those. Lastly, within Intelenet, can you perhaps give us a organic number as if it was consolidated? Appreciate it isn't now, but just for modeling purposes when we get towards the third quarter. Thank you very much.
About the growth between LLS and TLS. TLS is growing faster than LLS, not a little more. LLS is around a little more than 6%, and TLS is above that, closer to 10%. The pipeline on TLS, it's too early to tell. I know everybody's waiting for a different contract. I don't believe we will have a clear view until, hope August. Frankly, it's beyond my control, beyond our control. These governments sometimes take time to make decisions. They ask you more stuff. I hope to be able to announce something or at least to start to announce something in Q3. Remember, especially on the U.S. contract that you have in mind, there are two steps. The first step is to be able to compete. There is a second step to compete after. As far as pipeline in TLS is concerned, don't dream.
It won't have an impact on 2019 figures. If we gain something, it will be in 2020. For Intelenet, the growth is beyond between 10 and over 10, close to 11% growth, which is in line with what we are seeing everywhere.
Very clear. Thank you very much.
Thank you. Our next question comes from the line of Edward Stanley of Morgan Stanley. Please go ahead. Your line is open.
Evening. I've got a few. You've said that the group level, that there was 40 basis point increase from IFRS 16. You also said that CEMEA would have been 150 basis points rather than 200 because of IFRS 16. Can you just run through each of the divisions and say what the IFRS 16 benefit was so we can-
It's EUR 50.
try to model more clearly?
It's 50 in each division.
50
sometimes it's 50. Let's take 50. The only things in division that is below is specialized service, 30 basis points. It's roughly exactly the same between 45 and 50. I must confess, it's difficult to predict, we will give you the information for the last time at the end of this year, after, we'll stay with the IFRS 16. It's difficult to predict because it's very volatile. It depends a lot when you open, I would say, center. How long is the rent? Where is the actualization rate, which is different in Egypt than in U.S. Today, it's 50 basis points everywhere in all division, except in specialized service, it's 30 basis points.
Excellent. Thank you. That's very clear. On the multilingual hubs, can you break out how much of a portion of revenue it is for the entire group, and what organic growth rate those multilingual hubs are growing at?
I'm not sure I'm able to answer you like that. It's clear that multilingual hubs are pushing the growth either in CEMEA, in Ibero Latam, and to a certain extent, also in Penang, but it's just starting. These two countries are delivering figures that are beyond double-digit to get it at that point. I've hard time to tell what is exactly linked to the multilingual hub, because in each of these two countries, you have also a local market, even if it's smaller one, but it's growing not at this pace. I cannot answer you like that. Keep in mind that in both two countries, Portugal and Greece, and Lisbon and Athens, we are growing at higher speed than everywhere. Any other question? It's over? They don't work? I'm not sure.
Not sure to understand whether there are still questions that wanted to be raised, or are we over? I'm sorry. [Foreign language] Ce que je vous propose, c'est qu'on fait two minutes de break pour vérifier que sur le plan technique, on ait bien les bonnes connexions. Je suis un peu surpris. Je vous demande two minutes de break et on essaie de recommencer à 7:07 P.M. Sorry. Let's make two minutes of break just to solve the technical issue and we'll come back here in two minutes. Excuse me. Is there a possibility to hear the last questions? Otherwise, we'll stop right away.
Okay. Thank you very much for your patience, ladies and gentlemen. We will now resume the call and go back to our speaker line and to our Q&A session. We were taking questions from Edward Stanley of Morgan Stanley, so we'll return to that now. Thank you very much.
I'm sorry for this interruption, please go ahead with the questions that you might have.
I think we got most of the way through the multilingual.
Yes
hub question. The only other question, I guess, is on the synergies from Intelenet, which you couldn't quantify when you acquired it, but I was wondering whether you have any update on that.
No, there is no update. I'm sure you have seen that we are in the process of developing a digital day. We are going to host a digital day mid-October in Santa Clara in California. Probably this topic will be covered at that time.
Excellent. Thank you very much.
Sorry for this interruption. I'm really sorry, Edward. Other question?
Thank you. Our next question comes from the line of Patrick Jousseaume of Société Générale . Please go ahead. Your line is now open.
Yes. Good evening, Olivier. I have two questions. First question is on the DIBS. Could you, let's say, elaborate a bit on the growth of this specific segment? We see that the revenue was EUR 272 million in Q2. It was EUR 235 in Q1. Does the sequential growth of something like 15% mean something? The second question is on free cash flow. There is a Bloomberg report mentioning that you said, you expect at least EUR 170 million free cash flow for the full year. Could you confirm that, and could you elaborate about this EUR 130 million compared to the EUR 172 of the first half, please?
On the cash flow, I have been questioned by Bloomberg on that point. What I was just saying, he wanted to have a specific figure on cash flow for the full year. I said it was difficult to predict, especially in the light of the working capital movement that could occur at the end of the year. I believe we are going to deliver at least this figure in 2019. For the DIBS figure, the like-for-like growth is difficult to explain because what you have in the India and Middle East, you have two stuff. You have a significant part of the Intelenet business that is mainly India, either domestic and international. You have on top of that, the Indian business that was conducted by the EWAP before. Here, the like-for-like growth is only the EWAP figure.
Of course, because the Indian business of Intelenet was not part of the group last year. The like-for-like growth has limited, I would say, value because it depends a lot on the time that we opened when we developed TP India last year. There was a lot of development of TP India last year, but they are going to reduce as the years go by. More interestingly is that the total level of this division, which is 255, including most of the business of Intelenet, but not all, because some part of the business of Intelenet has been either reclassified in Europe with Poland, either reclassified in U.S. with the U.S. business of Intelenet, either reclassified in Iberia. This is described in page 28 of the presentation that try to explain to you how the different divisions are now set up.
The like-for-like growth of Middle East and India has limited value until we pass over the fourth quarter, where we will have the full division in place.
My question was actually more on the DIBS.
Sorry.
row in table page 12, where you have EUR 507 million of revenue for H1 and EUR 272 million for Q2 this year. Both this year. It means that basically 235 for the first quarter, 272 for the second quarter. Strong growth.
No.
it means something or not.
I get your point. Sorry to have not catch your question.
No problem.
The question is that, in fact, here you have in this division, you have, of course, a significant part of the India and the Middle East and all the business that are done, I would say, digital across the core service division. As you have understood, there are some growth coming from the digital client to make it simple, and that's what you are seeing in this division. As the year go by, you will have all the information coming on stream, because we don't have 2018 this way. Clearly we are growing in this division, and it's current with what I just told about the digitalization of our client base.
Okay, thank you.
Thank you. Our next question comes from the line of Laurent Gélébart of Exane. Please go ahead. Your line is now open.
Good evening, Olivier. I have two questions. The first one is regarding organic growth in Q2. Could you give color on what is the mix between existing and new clients? That's the first question. The second question regards specialized services improvement in H1 EBIT margin, so it's 160 basis points ex IFRS 16. I would like to understand if it is due to translation or if it is due to underlying improvement of TLS and LLS businesses.
Coming to your question, it's mostly coming from, for LLS is of course, in terms of rate because it's only USD. It's real, it's not translation. Two things at stake, in fact. In LanguageLine Solutions, you have the growth, which is linked to the fact that we are developing more and more video, more and more business that is happening. You had last year, and I'm sure you remember that we had some issues last year that reduced the growth and reduced the profitability. That has vanished, and now we are taking the full advantage of the decision that we took and the implementation of what we have done in video and in developing the business.
For TLS, the main story is, of course there are good volume stuff, especially in UKVI, in the U.K. government, but also the ability to sell more and more added-value services that have good margin. Most of that is real and not translation. About the organic growth, on the long term, it's true this first half, we are 50/50 between hunting and farming. I must say that the problem is that the farming, that's a business that you get last year, so it's very quick farming. A significant part of that is coming from the fact that we are growing with new client on digital business. Yes. That have been granted recently.
Thank you.
Thank you. Just to remind everyone, if you would like to ask a question, please press 01 on your telephone keypad.
Thank you to all. First of all, I want to apologize for this technical issue. I'm really sorry about that. It's beyond my control. Secondly, I want to tell you how pleased we are with this first half result. Either I have told you in terms of activity, margin, and cash. I wish you, for those who are going to the sea, a good holiday. Thank you. Bye-bye.