Capgemini (CAP.PA), the global consulting, technology services, and digital transformation company, reported a modest decline in its first-quarter 2024 revenue, with a -3.3% year-on-year growth at constant currency, totaling EUR 5.5 billion. While facing a challenging economic environment, the company confirmed its objectives for 2024, projecting revenue growth of 0% to 3% at constant currency and maintaining its margin targets.
CEO Aiman Ezzat expressed confidence in the company's market position and its involvement in client digital transformations, particularly noting the Strategy & Transformation business's strong performance.
Key Takeaways
- Capgemini's Q1 2024 revenue hit EUR 5.5 billion, with a year-on-year decline of -3.3% at constant currency.
- The company expects a gradual market improvement, forecasting an attractive exit rate in Q4 2024.
- Revenue growth for 2024 is projected to be between 0% to 3% at constant currency, with a margin of 13.3% to 13.6%.
- The TMT and Financial Services sectors faced spending constraints, while the Energy & Utilities and Public sectors grew.
- The Strategy & Transformation business outperformed the market thanks to digital transformation initiatives.
- Bookings aligned with expectations, and the book-to-bill ratio trend is crucial for forecasting.
- Despite pressure in discretionary spending and the Financial Services sector, signs of stabilization and improvement are visible.
- The Manufacturing sector sees some softness, particularly in aerospace and auto, but positive signs in new manufacturing areas are emerging.
- Capgemini's generative AI offering is gaining traction with a growing pipeline and larger deals signed.
- Europe is showing signs of stabilization, and North America is expected to improve.
- Headcount growth is set to accelerate due to increased demand, with a focus on scalability over high utilization rates.
Company Outlook
- Capgemini remains confident about achieving a mid-to-high single-digit growth rate by the end of 2024.
- The company anticipates an improvement in Q2 compared to Q1, though the recovery is expected to be cautious.
- A better-than-expected client pipeline in the last three months signals potential for growth acceleration in 2025.
Bearish Highlights
- The TMT and Financial Services sectors are experiencing spending constraints.
- Discretionary spend remains under pressure, although there are signs of improvement.
- The Manufacturing sector, particularly aerospace and auto, is facing softness.
Bullish Highlights
- The Energy & Utilities and Public sectors are seeing growth.
- Strategy & Transformation services are performing well, reflecting the company's strong involvement in digital transformations.
- The generative AI offering, despite initial overhyped expectations, is showing efficiency gains and a growing pipeline.
Misses
- No specific details were provided on the margin outlook for the coming quarters.
- The company did not disclose specific numbers for headcount growth in Q2.
Q&A Highlights
- CEO Ezzat expects Europe to stabilize without further shrinkage in Q2 and sees improvement in the North American market.
- Recruitment is accelerating, especially in the Financial Services sector, with headcount growth expected to return gradually in the coming months.
- Capgemini is not aiming for historic peak utilization levels but is focusing on efficiency and resource deployment to meet growth needs in the second half of the year.
InvestingPro Insights
Capgemini's recent financial performance and market positioning offer a mixed picture for investors. With a market capitalization of $36.17 billion USD and a price-to-earnings (P/E) ratio of 20.32, the company's valuation reflects a premium relative to its near-term earnings growth. Notably, the adjusted P/E ratio over the last twelve months as of Q4 2023 is 19.27, which suggests some moderation in valuation when considering the company's historic earnings.
From a stability standpoint, Capgemini's stock is known for its low price volatility, which can be an attractive feature for investors looking for less turbulent holdings in the IT Services industry. Additionally, the company has a consistent record of dividend payments, having maintained them for 19 consecutive years and raised them for the last four years. This may appeal to income-focused investors, especially in uncertain economic times.
Revenue growth presents a nuanced picture. While the company experienced a modest 2.4% revenue growth over the last twelve months as of Q4 2023, it saw a slight quarterly dip of -1.87% in Q4 2023. This aligns with the company's report of a challenging economic environment and the modest decline in first-quarter 2024 revenue mentioned in the article.
For those looking to delve deeper into Capgemini's financial landscape, there are additional InvestingPro Tips available that could shed light on the company's profitability, debt levels, and analysts' predictions for the year. As of now, there are 9 additional InvestingPro Tips that can be accessed for Capgemini, which can provide a more comprehensive understanding of the company's financial health and market prospects.
Interested readers can explore these insights further and take advantage of the additional information available on InvestingPro. By using the coupon code PRONEWS24, readers can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of data and analysis to inform their investment decisions.
Full transcript - Cap Gemini (EPA:CAPP) Sogeti S (CAPMF) Q1 2024:
Operator: Good day, and thank you for standing by. Welcome to the Capgemini Q1 2024 Revenue's Webcast and Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Aiman Ezzat, CEO. Sir, please go ahead.
Aiman Ezzat: Thank you. Good morning. Thank you for joining us for this Q1 revenue call. So I'm joined today by Nive Bhagat, our CFO; and Olivier Sevillia, our COO. So the first quarter came in-line with our expectations. We continue to see Q1 as the low point for growth this year. At EUR 5.5 billion, our Q1 revenue is consistent with traditional seasonality and brings the year-on-year revenue growth to minus 3.3% at constant currency. As anticipated, the market remained soft, but stable in the first quarter. Bookings totaled EUR 5.65 billion, so leading to a healthy book-to-bill for Q1 of 1.02. If I look now perspective by geography, sector and business, from a geographic perspective, Europe continues to demonstrate more resilient, recording a slight drop in growth as expected, with minus 3.2%, for example, in the UK. and Ireland, minus 2.8% in France and almost stable in the Rest of Europe. In North America, we continue to be penalized by the less favorable mix, but we have stabilized and the signs of recovery are there as we look at Q2. Regarding sectors. As in recent months, TMT and Financial Services are still suffering from constrained spend, while Energy & Utilities & Public sector remain more dynamic with 2.5% and 2.4% growth, respectively. Finally, on businesses, I'm particularly pleased with the performance that we have in Strategy & Transformation, which clearly outperformed the market. Again, this continues to reflect our continuous involvement in client strategic digital transformation initiatives, including the strong push on AI and GenAI and that also perfectly illustrates the strength of our strategic positioning. Looking at some of the deals we have the demand for large-scale digital transformation project remains strong in a macro environment, which remains soft. Clients are still prioritizing operational agility and cost efficiency program with fast payback as well as digital and sustainable transformational deals at the expense of nonstrategic and discretionary spend. We are perfectly positioned to meet these demands, thanks to our high value-added service offerings, most notably in Intelligent Industry, cloud, data and artificial intelligence. So let me put that in context by taking a couple of examples. On Intelligent Industry, we are leveraging our end-to-end model from consulting to engineering, including insights and data to support the digital journey of a US. manufacturing company. We implemented a scalable solution set of IoT technologies to provide real-time operational data to engineers, operators, maintenance team and leadership, enabling data-driven decision and analysis. We're also working with in shifting to a global delivery model to enhance IT operations supporting, both sales and marketing and accelerated growth focusing on fast and flawless deliveries. To lead to fast productivity gains, GenAI is leveraged on top of sales force, marketing and commerce cloud application. Generative AI will be used as a productivity lever for optimization and performance, advanced support assistance for complex issues and automating tasks to streamline the software development life cycle. We see sustained investments in growth area from our side. We indicated during our annual results in February that Q1 would be the trough, I confirm, it is behind us. The final growth has been strong and the number of large deals increased and we see more optimism in the US. market. As a business and technology transformation partner of CXOs, we are well positioned to cater the demand for large-scale digital transformation project. We continue to invest in our people and our portfolio of skills and offers while strengthening and expanding our technology partnerships and our focused industry skills. If you look at the underlying trend that we observed in the market, we see traction in the Intelligent Industry and the beginning of rebounding customer first. More and more clients are looking for complete solutions and not just technology. Thanks to our end-to-end model, our industry expertise and our strong ecosystem of partners, we are well positioned to catch this demand at scale. Clients are also increasingly relying on technology to progress sustainability. We are supporting them in their journey towards net-zero emissions, assisting in designing products that are more sustainable, helping in the implementation of more environmentally-friendly supply chain, scaling energy transition in giga factories and renewables. And we are also enabling the acceleration of the journey towards a more digital and sustainable economy. On cloud technology, which underpins the digital transformation, we combined end-to-end cloud services with industry-specific expertise, strong technology partnership to help our clients in their cloud transformation journey. On artificial intelligence continues to be, of course, as you imagine, major subject of interest and use a lot of discussion with our clients. In terms of generative VI, we keep investing in solutions. We launched a new platform a few weeks ago to allow our clients experiment with industry-specific use cases and to industrialize them at a controlled cost. We also continue to strengthen our skills in terms of capabilities around generative AI in leveraging our dedicated campus and expand our portfolio of offers to create the maximum impact for customers. Appetite for digital core, notably underpinned by ERP and SAP transformation is definitely there, and we see more structural business cost takeout initiative and strong demand for transformation. So at the end of this first quarter, I would like to confirm the growth trough is now behind us. We expect the market to gradually pick up towards an attractive exit rate in Q4, ranging from mid-single digit to high single digit at constant currency, setting up for a more tangible acceleration in 2025. And in context, we confirm all our objective for 2024, revenue growth was 0% to 3% at constant currency, with up to one point of scope impact at the top end, margin of 13.3% to 13.6% and an organic free cash flow of around EUR 1.9 billion. Thank you for your attention. I now leave the floor to Nive Bhagat, our CFO.
Nivedita Bhagat: Thank you, Aiman, and good morning, everyone. I'm pleased to share with you our Q1 2024 performance. Q1 revenues slowed down in-line with our expectations. We confirm this was the growth trough, and we expect a gradual improvement from here. Group revenues amounted to EUR 5,527 million, down minus 3.5% year-on-year on a reported basis. . With a negative currency impact of 20 basis points, our growth at constant currency was minus 3.3%. Excluding a positive scope impact of 30 basis points, organic growth was, therefore, minus 3.6% in Q1. The FX should have a slightly positive impact of around 20 to 30 basis points in Q2 and likely to be the same for the full year. Q1 performance by region also came in-line with expectations. At constant currency, revenues in North America region declined by minus 7.1% year-on-year, a rate similar to Q4 2023. The Financial Services and TMT sectors contributed the most decline partly offset by growth in the manufacturing sector. Revenues in the United Kingdom and Ireland region were down minus 3.2%, also mostly driven by the Financial Services and TMT sectors. Conversely, the Services and energy and utility sectors enjoyed solid momentum as to the manufacturing sector to a lesser extent. Revenues in France declined by minus 2.8% with some softness in the Manufacturing and Financial Services sectors and a dynamic public sector. Revenues in the Rest of Europe region were almost stable at minus 0.5%. The underlying performance by sector showed more contrast with good momentum in the energy and utilities and public sectors and a visible contraction of the TMT sector. Finally, revenues in the Asia Pacific and Latin America region were down minus 1.7%, almost entirely driven by the Financial Services and TMT sectors, while the consumer goods and retail sector proved quite dynamic. Moving on to revenues by sector at constant currency, while all verticals decelerated in Q1 as anticipated, we see a persisting contrast in our performance across our sectors. The Energy & Utilities and public sectors enjoyed a good start to the year with a growth of plus 2.5% and plus 2.4%, respectively. Conversely, TMT and Financial Services sectors after lagging behind with a negative growth of minus 11.1% and minus 7.3%. However, to note this does not change the sector's respective weight in our well-diversified mix. Moving on to revenues by business line at constant currency, total revenues of Strategy and Transformation Services are up plus 1.6% year-on-year at constant exchange rates. This growth reflects client focus on strategic initiatives to transform, optimize and adapt their business and operations to a challenging economic environment as well as investment in GenAI. Total revenues of Applications & Technology Services, Capgemini's core business declined by minus 4%. Lastly, Operations and Engineering total revenues contracted by minus 3%. Moving on to our bookings. Bookings amounted to EUR 5,655 million in Q1, down minus 3.5% at constant currency. However, the book-to-bill ratio stands at 1.02, which is the second highest over the last 10 years. In a challenging environment, this demonstrates that our offerings portfolio is aligned with client priorities. Finally, a few words on the headcount evolution. Total headcount stands at 337,200 employees at the end of March, down by 6% year-on-year. This is marginally lower than at the end of 2023 as we remain focused on improving resource productivity and utilization. The offshore leverage stands at 57%, one point lower than in Q1 2023 and stable since the end of last year. Lastly, attrition decelerated further over the past months. This brings the last 12-month attrition rate to 15.9% at the end of Q1, down by almost seven points compared to a year ago and well on our optimal operating reach. With this, I hand back to Aiman to open the Q&A session.
Aiman Ezzat: Thank you, Nive. So let's now open the Q&A to allow for a maximum number of people in the queue to ask questions. May I kindly ask you to restrict yourself to one question and one single follow-up. Operator, could you please share the instructions.
Operator: [Operator Instructions] We will now take the first question from the line of Mohammed Moawalla from Goldman Sachs. Please go ahead.
Mohammed Moawalla: Yes, good morning. Hi, Aiman and Nive. My question was just your commentary around obviously crossing the trough now and as you think of the shape of growth, should we think of kind of stabilization by the middle of the year? And then kind of hitting that sort of positive growth into that back half, which then has that accelerating trajectory? So if you could help us provide some sort of color around that sort of shape. And the follow-up was just on the bookings that was sort of negative on a year-on-year basis. Was there anything in the comparison or in the quarter that sort of impacted that number? And should we think of bookings kind of resuming that kind of positive trajectory from kind of Q2 onwards?
Aiman Ezzat: Yes. So two questions, question on the booking, the question around the slope of recovery. Look, so Q2, if Q1 is a trough, which in Q2 will improve, but Q2 remains soft. And also, it's an improvement, which is a trajectory. We see also a trajectory to Q3, and we're still confident about our exit rate at the end of the year. But as you know, the slope of recovery is the one what I continue to say, basically, we are careful about the slope of recovery even if in the ending point. We know pretty much where we're going to end. So Q2 is an improvement towards compared to Q1, but it's soft. Inside of improvement, for example, in the US. market, we really see a reaction, an improvement in terms of Q1 and Q2, it's really visible. For example, in the US. So that is positive. And the pipeline is higher. We see more large deals, but we don't see, for example, yet the resumption of discretionary spend. So, on the bookings. I mean, frankly, it's in-line with what we expect for the year, and we look at the book-to-bill, of course, the growth. When the growth will improve with a positive book-to-bill, we see growth in the booking. So we see a solid book-to-bill expect for the second quarter that will basically underpin what we have been telling you around the recovery and the slope of the recovery. But we don't see Q1. Yes, year-on-year is decreasing, but our revenue is also decreasing. So what we look at is the trend of the book-to-bill because that's what underpins basically the viability of our forecast.
Operator: We will now take the next question from the line of Sven Merkt from Barclays. Please go ahead.
Sven Merkt: Great. Good morning. Thank you for taking my questions. I mean, first, maybe on the quarter itself. Obviously, there is the timing of Easter this year fell into the first quarter. Has there been a meaningful impact on growth from this? And if so, could you quantify that?
Aiman Ezzat: Yes, can you reclarify? Sorry, I did not understand.
Sven Merkt: The timing of Easter falling this year?
Aiman Ezzat: Yes. Yes. sorry.
Sven Merkt: Impact on growth? And if so, if you could quantify it, please?
Aiman Ezzat: Yes, nothing. Sven, nothing significant that would have come to my attention from that perspective because I've had regionally some impact, but I don't see it as a factor basically.
Sven Merkt: Okay. Understood. And just following up on the comment earlier that Q2 will be still soft. Do you have already kind of a view whether it will be back to growth or not?
Aiman Ezzat: Again, as I'm not going to comment quarter-by-quarter the numbers. But overall, Q1 is a trough and we will see basically improvement in Q2, but it remains soft, because question is still not there. But it's -- again, there is a clear basically slope of recovery that we'll see in Q2 and Q3 to lead us to our exit rate where we still have the same confidence about the mid-single-digit to high single-digit exit rate.
Operator: We will now take the next question from Frederic Boulan from Bank of America. Please go ahead.
Frederic Boulan: Hi, good morning, Aiman, good morning, Nive. Good morning. If I can ask a question around, first of all, your guidance range for the year. I mean it's a fairly narrow revenue range. But if you can spend a moment on the different assumptions you've taken low and high end. And then a follow-up on AI, I mean, you mentioned putting this platform together to test use cases. What are the kind of big areas where you see clear use cases for your clients, strong engagement, probably the highest opportunity?
Aiman Ezzat: Listen, so on the low and high end of the guidance, it's really and the slope of the recovery is underpaid by speed of reacceleration in terms of client decision-making and the level of resumption of discretionary spend, okay? That's a clear two things that basically come short term and are not really something that we can predict. This is why we have that range. It give us a bigger, wider basically exit range in Q4 to high single digits still a wide range because basically, that's what defines a bit slow. But for the year, that's what will define the difference between being on the low end or high end of that guidance. But these are the main factors. I mean, right now, what has been happening is exactly what we expect. We see the pipeline increasing, which shows basically clients accelerating the review and the appetite for what they want. There's still a lot of cost transformation deals in the pipeline, but there are more transformation. It's not cost avoidance, from cost avoidance to cost transformation, which is not the same, but they're looking at how to improve their agility effectiveness. But it's more transformational deals. That's why we see an increase, which is quite significant in the number of deals in the pipeline. On the AI and GenAI traction. The number of this continues to increase as the last side of the pipeline continues to increase. The focus has still been around the front end, a lot around sales, customer service, marketing. That's where we see the maximum amount of deployment, the part around the efficiency of software product line, et cetera, is picking up as clients start deploying in their environment. And still a lot around how to leverage when you have a huge amount of data, manuals, et cetera, and content, how to leverage it. Now we have started shipped and starting to see more interest in specific use case by industry. So right now, we are basically deeply involved in a number of use cases around manufacturing, supply chain, engineering, consuming new products. So we see a pickup, I say, of industry-specific use cases, which starts to increase. They're not at scale. There's another area which is quite interesting, where we have done a number of large box, and we start to see some potentially larger deals coming is all the area of mainframe modernization. Wherever you have a high amount of legacy, the level of automation we have seen in terms of potential migration to move out of legacy start to be quite high, and this is quite promising, of course, in terms of enabling clients to move to a more agile and more effective basically technology base.
Operator: We will now take the next question from the line of Toby Ogg from JPMorgan. Please go ahead.
Toby Ogg: Yes, hi, good morning, and thanks for the questions. Perhaps just coming back on the discretionary spending environment. Obviously, you mentioned they're still seeing some pressure. Just thinking about the guidance for the full year on the growth side, could you help us with what the low end and the high end of the guidance implies for discretionary? And then just as a follow-up, I just wanted to come back on the Financial Services growth, minus 7% in the quarter. Could you give us a sense for whether you saw any incremental softening in that vertical versus your initial expectations? And then the look forward here. I know it's a vertical you're expecting to see a degree of improvement in. So what level of visibility do you have on that recovery at this point?
Aiman Ezzat: Okay. First, on the discretionary spend on the low end and high end. I think on the low end, I don't expect an awful lot of discretionary spend, so maybe a little bit, but not a full recovery. On the high end, yes, we expect that a lot of discretionary spend is back, okay? But on the low end, it's not based on the fact that suddenly people have resumed normal level of discretionary spend. We expect some to come back. We have to be optimistic about that. But, I probably not a full recovery. And for the one there are limited signs. So we see clients really focusing. So the deal, there is investment. We have a book-to-bill that's positive, which means basically sure that clients are making decisions. But we really see them really putting steel on the backbone of ever is nonstrategic or whatever is discretionary. So they feel the pressure to drive the transformation, so they're really focusing the deals and the discussion on what really has a bigger impact and visible impact, okay? We show that there's still some constraints around the spend that we see not fully there, and that's what will drive. And of course, as I mentioned, we see a lot of large deal pipeline. And on the FS growth, so FS, it's -- I think it's a banking sector that still basically be putting a lot of pressure on Financial Services. There is no bad news. It's just the continuous impact of the year-on-year that we see in Financial Service with a normal seasonality in terms of some of the spend. There are quite a few large deals we see in the pipeline, and there is a ramp-up of what we have won in the consolidation, which is starting basically to see positive signs. And we -- frankly, we see that positive sign. We see, of course, Financial Service has a high offshore leverage growth. So we start to see now the reageration of the hiring in India to basically sustain some of the scale-up of some of the consolidation that we have won. So I remain positive on the fact that we expect to move to a stabilization at some moment in around Financial Service, which means we will not have any more the negative impact although I don't expect a big reacceleration this year, I expect it to not impact the growth anymore as we grow quarter after quarter.
Operator: We will now take the next question from the line of Laurent Daure from Kepler Cheuvreux. Please go ahead.
Laurent Daure: Yes, thank you. Good morning. Two questions also for me. The first is on, back to the exit rate on the market. Shall we read an attractive exit rate to be equivalent to what you said earlier, which was mid-to-high single-digit growth? And when you look at the last 10 weeks, was there anything that you or that was different from your expectation and that could impact your degree of confidence on this exit rate at the end of the year? And my follow-up is on the Manufacturing sector. It's been a very strong sector for years. Now it's softer. Is it aerospace, that is having a soft start? And do you expect some recovery later in the year?
Aiman Ezzat: Okay, Laurent, thank you. So the mid- to high single digit, it is mid- to high single digit as being basically attractive. So it is not the high, it's the mid- to high, which for us underpins the reacceleration in growth for 2025. That's for the exit rate. I mean, whatever happened in the last three months is really in-line with what we expected. Actually, the -- probably, I would say, the pickup in terms of the pipeline was probably better than what I would have expected. Of course, clients will have to decide, and we need to have a good win rate. But in a certain way, it has comforted us in our perspective for the full year and it's comforting us that things are going in the right direction, and we will see the quarterly improvement. The Manufacturing sector, there is some, how do you say, it's a question it's not so much. There's not as much growth, okay? So yes, there's a bit of softness in aerospace. So I mean, there's not as much growth. Same thing in auto, is going -- not growing as much because the perspective are not as good in auto. But the cycles of investments are still there. The appetite is still there, but it is not the same levels of growth that we had previously. So of course, it does have a bit -- it shows a bit of softness overall in Manufacturing. But we see also a lot of positives in terms of new clients and new areas in manufacturing not only by Intelligent Industry. So I remain positive. So I think it's kind of a temporary softness. I remain quite positive around basically the Manufacturing sector.
Operator: We will now take the next question from the line of Charles Brennan from Jefferies. Please go ahead.
Charles Brennan: Good morning. Thanks for taking my question. There's been a lot of focus so far on the top-line. I was wondering if you could just say something about the margin outlook for the year. I feel like we've got a bit of a 2-way pull at the moment. On the one hand, headcounts drifting down, which is presumably good for utilization and margin. On the other hand, you're talking about continued investments into the business and maybe some deals that are more cost focused which presumably are lower margin rather than higher margin. At this stage, is there any reason to believe that we're trending towards the lower or the higher end of that margin target?
Nivedita Bhagat: Thank you for that question. So I think two bits over there. Number one is that we stick with the range of guidance that we've given between 13.3 and 13.6. Number two, I don't think you should read into the fact that because there is a decline in the headcount, it changes anything at all. We have a number of different diverse levers that we adopt. And number three, I think the important point to consider is that our mix is what we focus on when it comes to margin improvement in terms of the value-added services that we sell to our clients. So these three things put together you a good perspective. And then, of course, I think in terms of H1 and H2, I think it's important to understand that we don't expect to see a change in seasonality in margin evolution between H1 and H2 as well. So that gives you some perspective, Charles.
Operator: We will now take the next question from the line of Balajee Tirupati from Citi. Please go ahead.
Balajee Tirupati: Hi, good morning. Thanks for taking my questions. Balajee Tirupati from Citi. Two questions from my side. On generative AI, how has engagement been progressing? And as the pilots move to production phase, are they being financed from repurposing of spend? And second question, again, on GenAI, what are the efficiency part or expectations you see from your clients and competitors at this early stage?
Aiman Ezzat: So in terms of GenAI, in terms of growth, pipeline continues to increase. We continue to sign more deals, still many of them are small. We start to have larger deals. Last week, we signed one, which was about EUR 6 million. So it's growing. Some increase repurposing our spend. And I think, yes, there's probably a little bit of it for sure. There is probably as people are cutting, but we're not in big spend yet, when you talk about EUR 6 million deal for a company, you probably spend EUR two billion on technology per year. It's not a big repurposing of spend. So I don't think it's huge at this stage. Over time, it might have some impact depending on the growth of spend and the cost of scaling up some of this GenAI. But say, based on the level of spend, I don't think it's a big effort in terms of repurpose of spend on GenAI. In terms of what the efficiency, see there is efficiency. But I have said from the beginning of this wave around GenAI the expectation especially around productivity gains, et cetera, and cutting heads. I'm sorry to use this term is over anticipated people expect too much and to have. And I think we will, over the coming months, normalize a bit the expectations. As I say, we start to see a lot of more deals now, which are more industry focused and more value focused that will give tangible result but do require quite a bit of transformation in companies. So some of the quick wins, I think, will be fast behind us, and we really get into more of the deeper transformation that also will be the most value generating for companies. And we have to see some of the discussion happen. So when I discuss with clients, we start to see as the hype about the initial fall about how fast and how much product they're going to get. Who -- yes, we understand there is more tangible value coming from GenAI, but it's going to require more change, but also potentially more value creation. And just to show, also so the same people that were saying 12 months ago and pushing the hype, some large consulting firm about the amount of savings, et cetera, and productivity gains in IT, notably and so on, have changed fundamentally their numbers in the last 12 months. The 50%, 60% has come down to 10% to 15%. So we see -- we start to see more realism coming in the market, which I think is good news for everybody.
Operator: We will now take the next question from the line of Michael Briest from UBS. Please go ahead.
Michael Briest: Yes. Good morning. Just curious on the regional profile in Q2. Are you saying that Europe has passed the trough as well because North America obviously shrank three quarters. Do you think we're going to see an improvement in Q2? Or could Europe still be shrinking even in Q3? And then on hiring, Aiman, I think you said that you're starting to ramp up again for some of the Financial Services contract. Do you think Q2 will see headcount growing quarter-on-quarter?
Aiman Ezzat: Two questions. So first, on the regional profile, I mean, I think Europe is stabilizing. So much is some improvement somewhere, some maybe a little bit less in some countries. But I say, overall, I don't see Europe degrading into in Q2, and we clearly see the North American market basically improving compared to Q1. So that will definitely drive basically a lot of the improvement in Q2. After going the rest of the year, I don't want to speculate on Q3 and everything, but we'll have to turn positive, of course, as we go in the rest of the year to get to the attractive exit rate that we talked about in Q4. On the headcount growth, again, I don't like to be too many things on headcount growth. But we clearly see acceleration of recruitment, notably in the. The level of demand is increasing to fuel some of the deals that we are winning. As I said, as things progress during the year, the headcount growth will come back. So -- but we clearly see -- I clearly see first from a very soft now attrition rate and the level of hiring that basically will start trending in the coming months, not mentioned in Q2, specifically in the coming months in headcounts.
Operator: We will now take the next question from the line of Ben Castillo-Bernaus from BNP Paribas (OTC:BNPQY).
Ben Castillo-Bernaus: Good morning. Thanks for scooping me in. A question on utilization. So it looked like it ticked higher year-over-year, but there's still quite a bit of headroom if we look back to historic peak utilization level. So assuming demand kind of pans out as you expect this year, how feasible is a return to those historic sort of high utilization rates? And if so, what sort of time frame is reasonable?
Aiman Ezzat: Yes. I mean the historical highest utilization rates were also quite a bit if you remember as well, this were not easy period I'm not sure we want necessarily all the way there. Over the long term, yes, as you know, we're working on efficiency or deployment of resources. So over the long term -- medium term, sorry, we basically expect utilization to a bit more in the short term, not necessarily pushing, pushing for that because if you want to create scalability, we would need to try to balance basically the ramp-up of resources to be able to figure growth. So I'm not pushing for very high utilization. What I'm pushing right now is to make sure that we start to have built the scalability to be able to address basically the needs as we have as we go into the second half. Okay. Thank you very much and looking forward to interact with many of you in the coming days and weeks. Have a great day.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.