Earnings Call: Q1 2019

Apr 24, 2019

Ladies and gentlemen, welcome to the Q1 Revenue 2019 Teleperformance Conference Call. I'll now hand over to Mr. Olivierry Goody, DPTCU and CFO. Sir, please go ahead. Thank you. Good evening, everyone, and thank you for all for your presence tonight. We are going to commence your quarterly group figure for the first quarter that has just been released. I hope you get all of us the press release and the presentation that is available also on the website. I'm hosting this call from Paris with the team here, at investor, Quinn Guillain and Julian M. A. And, let's give them speech to quiz that has preliminary remarks to make first. Yes. Thank you, Olivier. Good evening, everybody. Welcome to this call. Financial press release related to the first part of 2019 revenue has been already today after the closing of the market. Dedicated slides. Slides are available on table from our website in the Investor Relations section. As usual, Oliviate presentation will be followed by a Q And A session and a replay of the conference call will be available later on the group website. Today's call contains forward looking statements that address our expected future performance and 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 looking forward forward looking statements. For a detailed description of these factors and uncertainties, please refer to the section risk factors in our registration documents available on Telepharma's website. Now I'll turn the call over to Olivier. Thank you, Qui. Before going in-depth in the in the figure and the Q1 figure, in looking precisely to the slide, I want to highlight 3 message from 3 key message from this release. First of all, of course, we are very happy with the strong growth recorded again. Once again, during this Q1, with 10% like for like growth. This is a 28th straight quarter in a row posting organic growth above 5%. That demonstrates if it was still needed that strength of our business model and confirm of status as a growth company. We just put on the appendix of the presentation, the slides showing quarterly like for like performance in 2012, if you are interested. Second thing, and I'm sure you have noticed that we have changed our presentation of our business to reflect 2 things. The expansion of its range of service and its shift to high value solution, notably following the acquisition of Intellanet. And of course, information about the detailed solution deployment strategy across the operation. We continue to split our business by geographical because it is a way that we manage the group. This is the manager of the group to follow, to follow by geography. And that's the way we conduct our business. That's why we added a new region and come back in a minute to that in a minute to that. We added an illusion and in the meantime, we have gathered all, what we call, digital solution in the so called deep total to allow you to capture the size of this new business. We'll come back in a minute to that. This new organization enabled us to more effectively meet our client needs in development and digital transformation. For sure, it doesn't change at all as a full financial performance of the group, but of course, it illustrates its progressive transformation and convergence between the different business lines. Today, close to 20% of the revenue comes from digital solutions that we call dips, more than 20% is generated from what we call worldwide leader in, in digital, in, in Magic Apps, that like business in business like retail, transportation of internal demand. So first of all, very good strong regard secondly, change of reporting. And third, very promising starting year, allowing to confirm of you for annual target at 7% like for like growth for 2019 plus increase profitability by 20 point. Let's go more in detail now in Slide 3. So you have the figure of the Q1 and the Q1 for 2019 2018 figures. Showing that we are at EUR 1,271,000,000, up 9.9% on a like for like basis. I agree we missed 0.1. We should have been at 10. That's we are 10.1. Clearly, it's a simple performance it's continuing as we have seen in the past over the last quarter. Total growth is, of course, close is higher, close to 24%, 23.9% to be precise. And it takes in account, of course, acquisition of Antalenet that is recorded now, in full. If we move to the following slide, you have the detail of what is the currency effect, like for like growth and the Chinese scope. No surprise here, the Chinese scope, of course, is in Telenet. And the currency effect is 1,000,000 of which the dollar is a main impact. There are other impact, but net net the full impact, the major impact EBITDA, which is close to the EUR 30,000,000 that I've described here. So that is the point. Going to stay a minute on slide 5 because this is probably the most new thing that we are going to make. Just to explain you how we are now explaining how we expand our own new sector. Following the acquisition of Fintech, we maintain the position the presentation of our activity by region. Why? Because TP organization remains structured by region in terms of operational management. You may have people that are running a country in where you have dips and non ditch business in the same country. So we wanted to keep this operational management alive and living as we have done in the past. Anyway, to mention that it impacted the business presentation over as follows. First of all, we call the 1st category, core service is changing to an larger new category called core service and dips or digital integration business service. Steel Split Information. A 4th region named India, Middle East, has been created, gathering all the ex intelligence activities is on plus telecom in India. That was before, I would say, ran under for the IWA business. And Praxidia of TP Computing solution that has been, close to all the activity of the engineer of Intellinib. Secondly, we put we identify revenue generated by deep solution in addition to the activity in the middle in India and Middle East region. Deeps include all the BPO activities as well as email chat and social network solution. So you have a decent of service that generates that I'm followed on a geographical basis but we disclosed on this 4 region, including the new regions that we created, the total of the deep activity across this 4 region. Specialized savings remain globally unchanged with LLS and TLS, except for Prashidya that is now reclassified in car service and digital category as explained earlier in the region of, India and Middle East. I hope it's clear, but it's not so complex. In fact, when you look on page 5, You understand what has been done. What was the ability to some specific region has been from internet has been classified with a good region. That means that Guatemala is going to be all at the time. Internationally Poland is going for Europe and Middle East, Philippines, USI and UK that are that was coming from Internet are, I would say, NACazzard in Iwap, while the tip India business has been put to middle to, India and Middle East. So let's move now to the activity, on the message of Q1. So we recorded a growth of 11.1 percent. I'm on Slide 6 in cost service and the dips Zelle has been clearly across the different region and it is driving the growth of this quarter. Clearly, if you strip, if you, if you look to the specialized savvy. So you have a growth, which is a 3.7%. But most of the growth and even more than most of the growth, older growth and more than most of the growth is coming from LLS. That is growing dramatically again. And we are confident that it will be able to swallow the clean the fact that IIM is a little down and TLS is flat. So we are experiencing again significant growth in LLS. At the end of the day, and we put that here, all the deep business in the group is now EUR 235,000,000, which represents 18% of the group revenue in Q1. That reflect, so progressive transformation of the group and the capacity to take profit from the market evolution and digitalization. Obviously, we don't have this figure from 2018. We will be able as the years go by, in the future to populate this figure on a regular basis and you will be able to follow that on a regular basis. Let's come to Ewap. Ewap, we have announced, I am on page 7. We have announced a 2.8% like for like growth. In fact, this figure is showing 2 things. Confirmation of the recovery in the North American domestic business, especially since the second half and the continued successful, the utilization of client portfolio, especially in retailing, health care, transportation savings and fast moving consumer goods. Asia is growing dramatically, especially driven by Malaysia, with finally the rapid development as a multilingual Hub in Berlin. You have an increase of the business in UK as weighted. We are close to be double digit down And we have no more tippy in this business, in this division. If we would have had each India in Telepe performance, the growth would be close to 5.3% showing the decline of UK. Issue again, take a UK that would have been flat. We'll be close to the 7% that we have experienced in year in Q4. So as the world, the region is doing well, even if it has been hampered by the decline of UK, which we believe is going to be considered in Q2 and with the disappearance of India. If we move now to Iberia Olatan on the following page, I would say that you don't know already Of course, the growth is 16.1 like for like, which has been, I would assume, by the Portugal. As always, but also with, Mexico, Colombia that are growing in near shore and Pan American solution, the domestic market are going in Mexico, Colombia and Argentina. And we are and we are seeing a pickup in Brazil. So when you look to this region, everything seems going well. I would say the same story for our CMEA on Page 9, even if the future is a little less, 15.1% like for like. Very solid sales performance among multinational client. So good increase in revenue in Eastern Europe but also in Turkey, in, of course, in Greece with the Michelin will up. And finally, a good performance in France, that shows also, the growth that we are experiencing. Lastly, for the core and the service here, you have the new sector, which is India and Italy. And like for like, you have only here Tipp India that was prepped before that was accounted in, in the UAP. So growth is absolutely amazing 42.5%. That means that we are experiencing significant growth in in, in India and to a lower limit also to a level level, sorry, the same story in Praxidia, significantly less. So strong growth of ex Internet activities on a pro form a basis. We are experiencing also on this business more than double digit figures as planned at the time we make the acquisition. Let's move to Specialized Savi. So 3.7% here. Just to be clear, all the growth and more than all the growth is coming from luggage line solution, which returned to normal growth after a more mixed performance in 2018. We are close to 7% close to 7% again. JLS, there is modest growth as we knew, we have still the negative impact of the method of invoicing in new KPI that will continue at least in Q2. And we'll see what happened after And we have a revenue from debt collection, which is down year on year, year on year and showing a decline. So but no major fear of a specialized service, especially when you see to seeing the level of the growth of language and solution and the fact that the growth in the last how can I say that in the last months has been accelerated versus the 1st month of the quarter? So all in all, we are happy with this Q1 course, it's just a Q1, but it's better to start this way than to start, as good. We confirm obviously our full target like for like growth at least 7%, 20 basis points more in EBITDA continued a good strong net free cash flow. So we are reasonably confident on the year to come. So that's where we are. Nothing really worried about that. Good performance. And I'm open to and with the team here to answer your question. We have one first from Mr. Alice Sais from UBS. Sir, please go ahead. Good evening, everyone. Just three questions for my five just trying to dive a bit deeper into the growth within Specialized Services. Unless you've kind of suggested it was at 7 percent. Well, that helped by a reversal of the 2% drag you had from a technical issue last year. And did you see any notable calendar impacts with an LLS this year? Second question on TLS, can you perhaps talk a bit about the pipeline for any material visa application contracts that might be coming up for tender, and your patch outlook post 2Q for that business. And lastly, I appreciate this quite a few moving parts within the reclassification of Intenonet. But when you acquired it, I guess the message was that there should be going at 10 to 12% organically. On a pro form a basis, how that growth tracking ahead of 3Q? Thank you. So LLS, of course, you have an impact only on March, because it was March last year, but as a whole, This is not explaining the reason of the growth. It has a positive effect. I'm sure you have understood that. The growth is significantly beyond that point. So we are seeing again a better growth in NLS. And I'm confident that this will continue over the next month. Of course, you never know, but we see a good momentum in LLS so far. As far as TELUS is concerned, we are, as you can, as you know, competing on some specific contractors, I have nothing new to tell you have been said to the market at the time of the release of the results early March. We are on it. It's too early to tell. Your third question, I'm sorry, I missed it was on the internet. So internet, so we are experiencing an internet growth, which is not the way we follow now the business, you have understood that we cut the business in peace across all different regions, but the internet business is growing above 10% as planned. And we are reasonably confident that it will be exactly like that for the full year. So we are exactly on track of what we said. Thank you, sir. We have another question from Mr. Edward Stanley from Morgan Stanley. Sir, please go ahead. Evening. I've got 3 as well. Firstly, on Ewap, despite the easier comps in Q1, you flag only really Brexit as being the severe when, but in the past, you've said that the UK is a pretty small portion of that group. So to explain 170 basis points is basically what you're saying is the step down because of Brexit. I don't know if it's only Brexit. You know, Brexit has a large shoulder and you do those that are better than me living in UK. I'm just saying that UK, it's a significant part of the business. Of course, it's a big it's the most, I should not tell that this way, but probably the most and but on European company in the group. So this company is down in Q1 and probably will be down in Q2 also. So it has an impact on the UAP. Yes. Clearly, but it's only Brexit or global mood. I don't know. To be frank. But it does clearly, in fact, yes, in terms of figure, in terms of figure, UK, delighted to see that it's still important for us. Sure, but I mean, the fact that it's you're saying it'll last into Q2, but if it is Brexit related then presumably we should if we're being conservative assume that it lasts into Q3 as well? I'm just saying that I know that Q2, you're probably right. I'm not sure the trend, the trend of of this issue will be so bad in Q3 than it would be it has been in Q1 and probably in Q2. Frankly, I don't know. But you could be conservative too. Of course, you can be conservative here. If I may say much more pleasing me to have an idea what is going to happen I'm not sure I am. Secondly, on debt collection, I know it's a small part of the group, but it appears to have been a drag for about six quarters now. Is there any update on when you think this can drop away? So what has been done, and I'm sure you have noted specialized service is now under control of, under management of the manager of LLS. Not only overseas LLS, but also TLS and IRM them to the correction business. Again, I believe this is going to suffer in Q2. I believe it's going to progressively come back to a better solution in Q3. Okay. And finally, I know we're not allowed to talk about and tell because we have to talk about Dibs now. But, where if I think about the business and you're integrating it, is on track, but are there any one of there any positive or negative surprises that you found within that business now that you've had it for a while? And Secondly, roughly, when do you think you'll get a feel for how much synergy could be delivered across integrating that into the group? So absolutely no surprise for different reasons. The quality of the team quality of the business, these people, I'm sure you know that they know how to work with different shareholders. So they are happy they are able to adjust very quickly. And here, we are shaking a lot of the coconut because we are cutting the business in part. Putting in a part in Europe, a part in LatAm and about somewhere and giving them also business that we are not managing by them. So So this is doing well. Frankly, of course, the idea is to, to develop synergies. There are a lot of things that are going on as we speak. Nothing has been really, but, there are some stuff that have been materialized, but nothing that has been could be could be told properly. We are thinking this is not an announcement. We are thinking to make something much more precise, much more detailed during Q3, probably in U. S. On the dips and on the synergy and on the digital approach. Sorry, what does that mean? What you're going to do in Investor Day on it or your? What we call a digital day or kept the market there. We have not defined because it's not totally designed for different reasons because we are waiting from some, we wanted to make it probably in the U. S, and we need to have something that is that need to be finished in term of CapEx. We hope to be able to do that in October. Yes, good evening. Couple and Olivier, two questions for me. The first one is again on LLS. Just want to understand the plus 7% that you mentioned. Is it linked with new clients, more business with actual client or Is there as well a price effect linked to the video development? And the second one is just to understand and to come back on Internet. So you you implement the Spanish language, if I remember well. So do you see the first? We stopped. Yeah. So so that's a part of my question. Did you see a first sign in Q1 of additional revenue or we are going to see it in Q3, as you said? Nothing in Q1, maybe in Q2, but I'm not expecting a significant number of there are some things that are signed. Or under scrutiny or under RFP or under negotiation as we speak and nothing that is material that you can take in account for in this figure. As far as the lettuce is concerned, you're right. The video is increasing significantly, and it helps in terms of volume and in terms of price. I don't know, it's difficult to tell whether it's new client because when you look at less portfolio of clients, it's so big And the size of the clients compared to a core business are smaller. So it's difficult to tell whether there is nothing material what we see is that the volume, the minutes plus the video are increasing. So, that's the reason that in this business, not only you need to have the client, but you need to be able to answer them. The time when they call you or when they when they say thank you. If you have not the proper organization, you are missing sales. So I believe that we have been able in this 1st part of the year to to be better on these 2, on these two elements. But it's clear video is increasing significantly higher than the higher speed than then the voice, then the phone part. Thank you, sir. We have another question from Mr. Patrick Josephson from Societe Generale. Yes, good evening. My first question is on U. K. Just wanted to know why the revenues don't 10%? Is it a question of volume price of decisions that you have taken to get rid of some contracts? I mean, could you give us more details about that. And my second question, volume is made of of 2 things. It's made of a volume of a client that you get and sometimes the client that you lose. So it's a mix of both. This was my question. Okay. And my second question is about CMEA. So we see quite a stronger revenue growth. Could you elaborate a bit on this and especially about the potential improvement that we could see on margin in this, in this geography where the margin was the lowest last year? Okay. So you have in TVs, the same, I would say pattern that we had in Q4, that means and the Michelin will help that is going well. The east part of Europe that is going well, including Egypt, including Eastern Countries is in the Europe, speaking about the Eastern Country. Now this is doing reasonably well. France is back on track. Italy, even growing a lot is growing, would say German seems to be a little better too. So you have rough the same pattern that you had in Q4. Of course, if it's continued all over the year, it should have a positive impact on our margin. Clearly. We have another question from Mr. Hanhampton from Credit Suisse. Sir, please go ahead. From Credit Suisse. Just two questions, if I may. The first one is on the India Middle East and obviously the the amazing like for like, growth rate. With it being a new division, I was wondering, is that the sort of growth rate you'd be expecting throughout the course of 2019? What's happening in Middle East. In fact, you have for like for like only what we called the what was leading before Teleperformance in India. You have also, yes, but all the zone is mainly in Telenet except the performance in India. So here you have and the like for like only Tippenya. Tippenya, we knew that we wanted to invest a lot in this country. So, we are experiencing, experiencing a significant growth NTP, yes, it's now close to 1 year and a half. And we are very confident about the fact that we are here selling some non Indian company from India. And that is going that is now managed by in India, India and Middle East under the management of the previous manager of Intellanet, but that was the decision that we have made last year and invest so much and to develop so much India. Okay. And And then the second question, if I may, I think you mentioned that LLS was growing stronger in the 3rd month of the quarter than the 1st month. I was wondering, in terms of an exit rate in general for the group, are you are you able to give us some some guidance as to what what sort of rate March was growing at? Group level? I'm not telling it. I'm not going to mention it by months because if I'm starting to give you the figure by month, you are going to call me every month to have that. What I just wanted to give you as an idea that what we are seeing, that's an increase increased business in LLS, especially in March. A part of that is coming from the one offs that we had last year, but it is going beyond the one off. So what I'm just saying is that forecasting a higher figure for the full year in LLA that we had last year seems at least reasonable. That's what the message that I wanted to convey during this sentence. And at the group level, obviously 9.9% for the for the quarter, there's nothing you draw out there about it slowing or speeding up throughout the quarter to quarter? Of course, the quarter just started. We have just even not finished the 1st month of the quarter, but the trend seems to be, seems to be good. Where we are going to land is 2nd quarter, it's So I'll need to tell you, clearly, we are, you have a good start. The second quarter is never the biggest one of the group. As you know, but in terms of volume, not in terms of growth, but we have not seen a big change in the second quarter so far. But But again, we are just, 25th March or 24th anniversary. So it's not, it's not over clearly. Okay. Thank you. Thank you, sir. We have another question from Mr. Laurent Gerdbach from Exane. Sir, please go ahead. Good evening. Three questions on my side. So the first one is on Brazil. So if I remember well, it is is in check, chunk of your EBITDA quality and business. So I would like to know what was the level of organic growth, there. And if you think it is sustainable. The second question relates to India. As you are becoming Indian in India with the acquisition of Internet, do you believe those guys helping you to develop further the business? Do you believe the growth was just because of what you have been doing in the past year and a half? And finally, Turkey, I think it's the first time you mentioned Turkey. So could you let us know what do you do there? I mean, it is nearshore, offshore, or it is for the local market? Brazil, no, I'm not going to give you the precise figure of Brazil, but I know that it was a concern by a lot of your colleagues about what's happening in Brazil. What we see. In fact, we made a decent year last year in Brazil, but it seems that Brazil is doing so far, not badly, and we hope that it will continue. There was a lot of question about Brazil. It's much the uncertainty. And it seems that despite what people might think might have in mind from the new government. It seems that in terms of business, the business seems to be reasonably good. So we hope that we will be able to catch that all along the year. So that's the first plan. In India, of course, here the like for like growth is only capturing what has been tied for Egypt, because it's by nature. It doesn't mean that the Indian business is not doing well at all. In fact, you have different business in here. You have the international business and the domestic business. If you want to grow dramatically in domestic business in India, we might say it's not so difficult to the idea is not to grow so much in domestic business with low margin. So the idea is to select precisely for the domestic part with whom at what margin you want to work. So this is under control. We are looking at precisely to develop the business. But the growth that we have in the in India of the internet business, whether it's domestic of non domestic is not at 45% like, like the India, which is smaller, but at a good rate. Frankly, we have a good rate too. As far as Turkey's concerned, I mentioned it, I should probably enough. It's doing well. It's, it's, it's not a big business. We are doing, offshore near shore, I would say, mainly, but it's not a huge business. So we do believe that this country. Once a day, will it grow significantly, much more than what is the size of today. But so we are working on it. So we have no other questions. Sorry. So all in all, I just wanted to say that First of all, I want to thank you for all your participation and your interest in Telet Performance. Quell is going to give you some detailed agenda what is going on for Credit Performance. Again, I wanted to highlight this is a good quarter, a good start of the year. We are happy with that. We do believe this is a good start of the year. And there are issues we mentioned them some and some time, but as a whole, we are more than satisfied with the beginning of the year. Queer challenges for Yes. Thank you, Olivia. I will give you a few key dates for the coming months. So indicated agenda set performance holds its annual meeting on 9 May, in Paris, we invite our shareholders to participate with the events and actively take part to the resolution voting site or through our dedicated voting platform. All the details participate available on 9 on data from SWAY side. Please also save the date of the 2019 half year 3rd publication on 25th July 2019. And of course, in the meantime, the performance continue, we continue to pass to numerous conferences organized by brokers. And of course, we will be happy to see you there. Thank you. Thank you all. And see you in the weeks and coming months. Bye bye. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.