Teleperformance's (TLPFF) CEO Paulo César Salles Vasques on Q4 2016 Results - Earnings Call Transcript

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Teleperformance (OTCPK:TLPFF) Q4 2016 Earnings Conference Call March 1, 2017 3:00 AM ET

Executives

Daniel Julien - Executive Chairman

Olivier Rigaudy - Chief Financial Officer

Paulo César Salles Vasques - Chief Executive Officer

Fabricio Coutinho - Chief Research & Development Officer

Analysts

Kathleen Galliot - Natixis

Patrick Jousseaume - Société Générale

Antonin Baudry - HSBC

Mourad Lhamidi - MainFirst

David Cerdan - Kepler Cheuvreux

Operator

Okay, it is 9 o’clock. I think it is time to start. Ladies and gentlemen good morning and welcome to the presentation of our 2016 Financial Results. I will start and Paulo Cesar and Olivier will then continue this presentation.

Daniel Julien

The presentation just to tell you that, yes, 2016 was a perfect year for Teleperformance, not only because all our indicators are green, but also because it was a transformational year. Transformational year in the sense that we extended the scope of our activities, giving to Teleperformance a new boost for long-term growth.

The revenue were at €3,649 million, plus 7.4% the EBITA at €408 million, plus 16.3% versus 2015 with an EBITA ratio at 11.2%, plus 90 basis point. Net profit plus 6.8%. Diluted earning per share €3.67 versus €3.45 in 201,5 and an excellent net free cash flow at plus 16.8%. So I think the numbers speak by themselves.

The second point that was very important this year is the fact that we succeeded in making the acquisition of an outstanding company in September 2016. This outstanding company is LanguageLine Solution. This is the leader in online either by phone or video, online interpretation within the U.S. and very present in the UK also with a revenue of $388 million and more than 8,000 interpreters.

This is a very high-profile activity, doing interpretation in mission critical situation for the healthcare, for the police, for the government, for the financial institution, for the insurance, and we are extraordinarily pleased with this acquisition, because together with TLS, our visa process service, it starts to make the base of a new division of activity within Teleperformance that we call specialized services, always dedicated to customer service, but in activities that are more complex, more high value, as they are more complex either by the nature of the people that we employ, or by the process, or by the IT that is involved, but in any case, they drive more value.

So right now to understand our group, there’s nothing better than a good sketch. I don’t know if this sketch is good [audio gap]. We are a people business. Our mission is people helping people to find solution to their day-to-day issues. And to manage 217,000 employees like we had at the end of 2016, you need two major components, care. You need to really care about your employees the way they are treated, the environment in which they work. The way they feel at work, and of course, discipline. And discipline in a very positive sense of the term, which is efficiency in the process.

So at Teleperformance, every single production of service that we deliver is underlined by a unique process in – all around the world in all the countries where we are present. And all these processes are, of course, totally documented, so it’s at by the book.

Within this yellow frame, Teleperformance has three specific components of added value. First, we have – and I’m going to start by the bottom. First, we have our language capabilities. Our language capabilities, yes. We speak en masse more or less all the language of the world. So to speak to the community of human that helps.

Second, it’s a robust telecommunications system and IT system. Not only robust, but sophisticated. And here at Teleperformance, we have developed an integrated omni-channel solution based on our proprietary software, CRM software, TP Client, that help us to answer seamlessly to a customer or to a citizen that contact us by whatever channel. So the people can connect us via chat, via mail, via phone, via social media. In any case we keep track of their historic of connections and so they don’t have to reidentify themselves, they don’t have to re-explain. And this represents a superb progress.

The third component of the outstanding advantage of Teleperformance is the experience acquired over the last 40 years. And I think the first time we became number one globally in our market was in 2007. So I think for 10 years, we are the global leader in the market. And the wealth of experience acquired by industry verticals is outstanding in terms of what to do, what not to do, what are the best practices? How to be more efficient. And these treasuries of experience combine with our global presence and our IT capacities, make us the natural partner of the global multinational companies.

Today be a company, be a people company, serving people in their day-to-day need goes way beyond the notion of call center. We love call centers. We are born with the call center and the telephone, believe it or not even for the people like me, who are addicts to the chat and to stuff like that, remain from far the dominant media, but the customer experience or the citizen experience use multiple channel and take very different form and that’s [audio gap] starting 2017 in two different division, our core service, which are personnel service, technical assistance, and client acquisition. That would be probably more or less 85% of our sales today and with more or less 10% EBIT, knowing that the average growth is plus 5%.

And on the other side, so I’m saying that is emerging, but emerging very strongly. You have the specialized services, which are our online interpreting services, our face-to-face visa processing; remember, when we started to acquire TLS, I think it was in 2010 or 2011, I don’t remember very well. It was a baby company, today it has grown in a fantastic way, being – serving the government of Germany, Netherland, France, and of course U.K. to process the visa of the people all over the world who would like to go in this country – to these countries.

Of course today and with the tool that we have is the intelligence means Big Data and we developed years ago already a company that was specialized in Big Data analysis with predictive model, mostly two predictive model, one internal predictive model that we call on target and that help us to better stream to make a better triage of our employees much more efficiently. And an outside model that is called inTouch and that helps to predictive the behavior of a market segment of whatever recording through multi-factorial analysis. And finally, the debt collection that is also very specific because you need people who are specifically trained most of the time with licenses in the U.S. is also in this dynamic.

As I said, 15% of the sales, but 30% of EBIT margin, so you see these are high-value specialized services and with the organic dynamic that this is more or less plus 6%. The Group is going to evolve and we really plan in the years to come to see this specialized service line by seeing from 15% to 16%, 17%, 18%, 20% while keeping its profitability profile.

So, what’s the strategy? The strategy for the Group and I’m going to go beyond 2017 because sometimes when I see first I don’t like so much the old strategy, because everybody use strategy the morning to brush the teeth is these, you know what strategy I’m going to take today? Do I start by the left or do I start by the right? So, what are our key action item that I prefer?

Our key action item, first the focus on some geographies that have outstanding potential and profitability profile. These are, first, to countries that we see a tremendous growth for us, which are China and India, everybody knows what are these two countries so no need to elaborate too much, while keeping a strong focus on the Philippines and Malaysia as our strong contributor to the group while serving the U.S. market. But we have a specific focus on boosting China and India. We have in these geographies high double-digit growth and excellent profitability.

The second point – I’m going to speak about the third one and I’m going to come back to the second after. The second point is our characteristic at being the natural partner for the global client. I would say that today we are very happy. The global clients that we serve in multiple countries represents 37% of our revenue from 28% five or six years ago. It has grown a lot.

But at the end of the day, I would say we have been more reactive than proactive. And our global clients are today mostly U.S. multinational and some European multinational. In fact, on our little planet, there are outstanding multinational companies that are based in Korea, in Japan, in China, in Taiwan and that we underserve, except few exceptions. And here we have decided to invest in people, in proximity, to replicate towards these Asian multinationals what we have successfully done with the western multinational.

The third point is the technology. So the last best outcome of Teleperformance technology is deep integrated omni-channel solution. But right now, we have an R&D team that is very well in progress to integrate including the artificial intelligence in the form of the bots in our integrated omni-channel solution.

And I think we are going to see the release of our integrated artificial solution within the omni-channel solution of Teleperformance by before the end of the first-half 2017. And knowing that the artificial intelligence has definitely a place in the scope of our activities, and mostly a place as a triage or for short interaction and pretty easy interaction at this level.

Third point, added value. I spoke about it. And the five priority action item is the cross-fertilization and the development – the organic development of our specialized services, high-value services. And this is the fact to try to break the glass ceiling for our visa services in the U.S., because we serve many, many European countries for our visa services, but not the U.S., today.

And second, to take advantage in good synergies of Teleperformance footprint all over the world and TLS footprint to help, to boost the development of LanguageLine Services. And right now already, of course, we use the footprint of Teleperformance to help to boost the online interpretation capacities of LLS in Arabic, in Mandarin, and any language that can be difficult to source. That’s for the organic growth and these are the five items on which we are concentrated, day after day after day after day beside running the day-to-day business.

What about the external growth? External growth is very simple. First, I would tend to say that it start by the fact to consider external growth according to your resources. Today, Teleperformance has a leverage on its EBITDA after the LanguageLine acquisition of…

Olivier Rigaudy

2.6% pro forma.

Daniel Julien

Of 2.6% in pro forma. We are going to reduce that below 2 in 2017. And then we are going to be again in our zone of comfort. Our zone of comfort being to have a leverage that is between 1 to 2, ideally at 1.5 EBITDA. But let’s no – let’s make no mistake. We are going to continue to make strategic acquisition. And the strategic acquisition are going to be directed most likely towards other high-value specialized services acquisition. Same nature, maybe different process, maybe addressing different needs, but same nature as LLS or TLS.

There is something that we discover more and more every day and for me it’s magic, almost every day. It’s the more you are in our business, the more you discover how the customer and citizen needs are underserved or badly served. And how, beside the general vanilla of the service, for different categories of human or needs, there are opportunities to do a better job.

Teleperformance is going to continue strongly in this direction in the next four years. Now tactically maybe we are going to make local acquisition of companies in our core service, because a company would be super well managed in a geography where we are not strong enough, or something like that. But that would be technical, it’s not a strategic view. So this is the situation of Teleperformance as per today and the strategy. Now, PC?

Paulo César Salles Vasques

Thank you, Daniel. Good morning. I’m going to start adding a little bit more colors to the key facts and figures that Daniel presented in that introduction. So we added in 2016 28,000 employees and more than 20,000 workstations. So we reached 217,000 employees, all over the world, and 163,000 workstations is the biggest footprint of the market by the way. And launching operations in Australia, Madagascar, Malaysia and Panama, this Panama, the last one with acquisition of LanguageLine.

So, we added in 2016, 24 contact centers and we reach right now 340 contact centers all over the world. And we interact in 265 languages. If you remember well, we were in 75 languages, but right now, 265 with the acquisition of LanguageLine that boosted a lot the number of languages that we serve. So, all in all, 74 countries, 217,000 people and 265 languages.

So, here are the key figures, in 2016 pro forma €3.9 billion, an EBITA margin of €500 million, net free cash flow of €236 million, and diluted earning per share 3.67% representing a 6.4% growth.

Olivier Rigaudy

Sorry, not so easy.

Fabricio Coutinho

Okay. Europe contribution, we took 49% of the total revenue, sorry, okay. So we took 49% of the total revenue and the offshore and nearshore right now represents 38% of the revenues of Teleperformance versus the 29% in 2013. We’re strongly diversifying our client base, you guys know that this has been our process and it’s an ongoing process.

And right now we have a significant growth in non-Telco internet pay-TV sectors, representing 72% for our volumes versus 53% in 2013, so those sectors represented much more in 2013. And we have a strong momentum in healthcare and insurance, financial services, travel product sector and retail. By the way we’re going to talk a little bit more about the strong momentum we had in healthcare in EWAP world in the Q4, because I think it’s a question that is going to be raised.

So as you guys can see, we are decreasing the concentration with our clients, so our number one client represents just 6%, 7%, our top 10 clients today represent 30% and our top 50 clients represent 61% of our portfolio. And we have in average 850 clients all over the world without counting LanguageLine clients, because LanguageLine clients alone it’s more than 25,000 clients.

And the average tenure of the clients in Teleperformance right now is 10 years and why? If you remember the past two years, I would say, we were between 12 and 14 years, it’s because the new clients of the new era, the new economy, they’re taking a big chunk of our business. So instead of being, I would say, number 60 or number 70 or they didn’t exist, right now they’re among, I would say, top 10, top 5, top 10 top 15 clients of Teleperformance and they didn’t exist, I would say, three to four years ago.

And global accounts is very important to mention. Global accounts represents to-date 37% of the Group revenues. And it’s interesting just adding on top of Daniel’s comment that we’re the perfect partner for them. We are all over the world. One single metric to choke, one process, one single process is standard so they want that. So and we’re in a good position to take their business and to be partner with them. So, needless to say that we’re the most awarded company in this field.

The first one is one that gives a lot of pride for us, because we’re among the Great Place to Work Companies all over the world and we’re certified by Aon Hewitt and those companies that are not, the companies and subsidiaries that are not among those companies are in process to be among those companies. And another one that I would like to reinforce and to point out is to be awarded as AT&T Supplier Diversity Crystal Award so that was such an achievement for a Teleperformance.

Now I’m going to pass to Olivier and I take it back in a few minutes.

Olivier Rigaudy

Thank you, PC. I’m going to present you.

Unidentified Company Representative

I’m not sure what you said.

Olivier Rigaudy

No, everything fine. So, I’m going to try to explain you the figure of the year, I hope you would be able to catch it. So, outstanding figure as you can see, again just the first point to mention that the level of the dollars – average dollar, I’m going just to mention it is same than last year at US$1.11 and we have been able to achieve a growth of 7.4% reported, which is the same for like-for-like growth.

As you can see the EBITDA has a grownup also significantly close to 14% to €560 million. Just to be clear here, we’re consolidating and we will come back in a minute to that LanguageLine only three months announced for the full-year, for this year. So grown – a significant growth in term of EBITDA that is shown also at EBITA level with a growth of 16%, while growing not only the volume, but also the rate that has grown by 90 basis point from – versus last year.

I will come back in a minute to the operating profit and see that is growing less 10% which is due to the non-cash, I would say, elements that are below the EBITA. And finally including financials after-tax, we are landing at €240 million, which is a growth of 7% versus last year roughly, including some exceptional cost linked with the acquisition that we did – we performed this fall and I’m going to explain that much more in detail in a minute.

So moving to the sale, so here is a sales. As you can see we have been affected this year by a currency effect on our sale which was significant, a significant part is coming from the Sterling another part from Latin American currency, especially the Argentinean pesos, but not only that reduce the size of the sale this year. But despite that, we have been able to grow significantly. We have €240 million – I don’t know why it’s better. €243 million coming from the like-for-like growth and €114 from some change in scope which is LanguageLine Solutions, so that’s been consolidated as of 19th of September.

As far as currency is concerned, we put only the 2016 figure, because they are not so different from 2015. What you can see that the Sterling is still significant and we put – we didn’t put so far in the order, but we are growing in some Asian country including the Chinese companies that is growing as we speak. So, as a whole, a very good growth in – for the sales in – for the full-year.

If we now move to, by region. We put here on the slide that growth has been significantly achieved in the three region. As in EWAP world has grown 4.5% on a like-for-like basis; here you have the impact of the Sterling in the reported figures that is lower than the like-for-like growth. Ibero-LATAM had boost significantly this year, 11.3% like-for-like growth this year, which is amazing, while Continental Europe & MEA is also growing at the high speed 9.5%.

I remind you at this stage that TLS is part of Continental Europe here in this breakdown. And we put just for the sake of the completeness, LanguageLine Solutions for the three months analysis posted a consolidated drop. So here are the figure we have been able, as you can see to achieve a significant and very good growth in each region, significantly ahead of the market and from what I saw significantly ahead from the competition too.

If we now move to the region, my comments are by for the full-year as I see it. So, Europe a 4.5% growth in the -- for the full year which is an acceleration since H1. We have business development in most of the region – in most of the verticals that as we mentioned, a scale on which we come back retail, transportation, financial services, electronics, consumer good industry.

As you can see and it is not a surprise, we had a lower quality contribution from telecommunication. And we have a consistent growth in China and India all around the year.

If we now move to the recurring EBITA, most of you have pointed out in the first half that we had a decline in the first – in the result of H1, as you can see we are back on track. We are now in a better position that we were in the first half, you remember why, so that shows that the Group is now back on track in this region with more favorable basis of comparison, better momentum in H2, rather a ramp up of the famous news facilities that came on board – that came on stream, sorry, early this year and this impact that is reducing of the mix effects that we experienced in the first half.

So, as a whole, the region is experiencing a further growth and better profit, again better efficiency as we did. And it’s following exactly the strategy that has been announced by Daniel, including the development of the Asian part of the business.

If we now move to Ibero-LATAM, Ibero-LATAM has performed a fantastic year. I know it was a fear for everybody of you at the beginning of last year, but we have achieved a like-for-like growth of 11.3%. What has come from is come from the fantastic success of Portugal, a multilingual hub, some of you know it. We visited for – with some of you in 2012, if I remember.

We have continued to grow dramatically here and we’re experiencing a fantastic success with most of the major European brand and American brand. We have also good performance in near shore Colombia, Salvador, Dominican Republic, as well as Mexico. And Brazil despite an environment, which is difficult – is still correct even less good than it was before, but acceptable.

In term of margin, we are landing at 12.3%, again with good performance in near shore, Portugal, Colombia, as I mentioned. So very good figure again, delivering a good part of the result for this year in this area.

If we now move to, sorry, to Continental Europe. Again, like-for-like growth is 9.5%, is due mainly to the development of main clients, especially clients in Eastern Europe and Southern Europe, where the group is absolutely, I would say, delivering very good performance and able to follow most of a big client across the world. So we have very good result in this country, including Egypt, Dubai, but also Russia, Poland, Romania and Greece, I forgot to mention Greece that is always a surprise for you, but Greece is absolutely a fantastic even also a multilingual of strategy that has been implemented in this country.

On top of that, we have the growth also of TLS, which is lower than last year, because we started to grow. We have implied all the countries, where we should imply for the UKVI business. So we still have growth, but at the lower space than last year, but still growing.

So the full region is now delivering a recurring EBIT margin of 7.3%, including TLS with famous growth in Greece, Egypt, and Poland, as mentioned. I. Know you are and some of you are interested by France and by Continental Europe. We are now without being fantastically profitable now. We have to break-even in France and we are no more – it’s no more an issue for the group any more.

That puts figure of LanguageLine for three months and I know some of you also were worried at the level of the margin of LLS. You see that LLS is still delivering a very good margin and there is no reason by which this margin should decrease next year or in 2016 – in 2017 and after. So we are continuing to delivering very good margin and significant growth also in this business.

Coming to the second part of the P&L. So we saw, but EBITA that is €408 million, a 11.2% margin, 90 basis point over last year. We have some nonrecurring item. As you know, most of them are non-cash. You have the amortization of the performance we have planned, which is €22 million this year. And you have the amortization of the intangible assets linked to goodwill, especially after the acquisition of LanguageLine and that is climbing versus last year.

I just wanted to point out the other – the line other, which is €6 million, which is a cash nonrecurring charges that is – that has impacted the group, but will not next year, which is a cost of the acquisition of LanguageLine, that’s mainly accounting legal and insurance costs, which are, as you can see significantly low compared to the level of the price of the LanguageLine. So this cost has been incurred, 100% incurred in 2016 and would not appear next year.

Moving now to the financial charge mainly which is €39 million versus €27 million. Again you have also hear one-off of close to €6 million, which was needed to get the cash on time. Again, this will disappear next year. Clearly, you will have next year as a full impact of the financing on our full-year of LanguageLine that these costs will be stripped out.

On top of that, you have an income tax that is steady of around 27%, a little below 28% this year. I just wanted to warn you, we won’t be able to get this figure again next year. We’ll be probably beyond 30%, 32%, if things stay as they are today in terms of tax charge next year.

So we are landing in the profit of €214 million, which is 7% increases versus last year. Just wanted to tell a world about cash flow, because it seems to me important to see that we are now seeing a 16.8% increase in cash flow, including if I may pointing out the €10 million to €12 million cost that has been incurred for the LanguageLine Solution acquisition, 5 at 5, 5.4 at EBITA level and 5.8 at financial result table.

So we have been able to get to resource from the working capital of €17 million, while the group is growing at 7.4%, that’s something that has to be pointed out and noted. I’m not sure we will be able to make that again next year, but during the year we have been very, very tough under working – under GSO, under working capital management, and we’ll continue to do so.

Not only we have been able to get some cash from that, but we have continued to invest and to have some CapEx. Net capital expenditure is 5.2% of the sales, which is significant. So that means that we have been able to invest for the future. We have developed business in centers in Ibero-LATAM, but also in Asia to not as a growth of tomorrow.

So despite this CapEx activity, which is high, we have been able to deliver net free cash flow of €236 million, which would have been €250 million without cost of LanguageLine Solution acquisition.

I think it’s a really good performance. If you now come to the debt, so gearing is 87%, so we are perfectly in line with the covenants just for you – those those as well who could be worried, but we are perfectly on line. As a net debt-to-EBITDA ratio on a pro forma basis is 2.6. It has been a little higher than what we sought is partially linked to the level of the dollar, as you can see, the dollar was $1.11 all along as an average all along the year, while at the closing date, it was $1.05, if I’m.

So that means that there’s the advantage of that in our leverage ratio. If you strip that out, which is roughly €45 million, which should be exactly at 2.5 as planned during the work all around this summer. So very few things to say. The cash conversion is 42. So we do believe that we are exactly on track on the pattern that was defined when we launched the acquisition of LanguageLine.

I’ll show you later on as a trend towards 2020. Not to say too much about the balance sheet except that we now reach €5 billion as a total of the balance sheet. We are going to ask to the general assembly if I’m able to make it. Yes, we are going to stay to continue with a stable payout ratio of 35, that seems reasonable for us, but an increase of €0.10 around on the dividend that will – that would be €1.30 well if General Assembly votes that mid-June. I’m going to give it back to now the floor to PC.

Paulo César Salles Vasques

Okay. So talking a little bit about the market just you know, so you know, so the contact center market today not as far as I’m talking about the overall market is between $300 billion and $320 billion. And as you can see, the in-house market in 2010 was 78% and today is 75%. So it’s – we here we kind of can show a trend towards outsourcing, but this trend is a very – it’s in a low base, very low base. But anyways, it shows that you have a lot to grow in this year.

So the total market grows 2% per annum. And in our outsource market, we grow between 4% to 5% per annum, okay. So and the industry has evolved it from low complexity work to a broad range of services that drives customer experience. So the products are much more, I would say, even out, so companies are starting or think to achieve the – in the customer experiences here. And outsourcing providers are gaining share globally, especially Teleperformance with the global clients.

Talking a little bit about the regions, and now just the outsource market. This market is a $60 billion market, 40% of volumes are generated in North America, that is the largest market, including APAC and LATAM offshore. And the growth, as I said before, is in average 4% and it’s going to be in line with this 4% for the next four years.

The global customer experience market across all regions, and APAC is a region that grows the most, okay. So instead of being 4%, it grows by 6% off which China is almost 17% growth and India 7.1% growth. So just to explain a little bit how we are focusing a lot on those two countries. And also it’s very interesting to point out that the nearshore market grows at a pace of 8.8% per year.

So, customer experience market is expected to grow in all verticals, but in North America healthcare and technology are driving the growth with more than 5% and increasing complex and they materialize the world, requiring omni-channel solutions even if voice, as Daniel said in the beginning, remains the main medium. But as you can see in this chart on the bottom right, voice represents 6.2% growth [audio gap] of the growth between 2016 and 2020 [audio gap] 7.5%, social media 18%, and others 10.5%, but few device has a significant growth.

This market is very fragmented with the top leaders and then biggest operators, they represent 31% of global outsourced market. So it still has a lot of opportunities to consolidate. And so as you can see here that our performance is the leader since 2007 with Convergys being number two, Alorica, Concentrix, ACTICO and Connector.

That’s the snapshot of Teleperformance as of December 31, 2017, 74 countries 217,000 employees and more than 160 markets served, so a perfect partner for global clients.

A little bit more figures, when you see here Teleperformance being number one, you can see that the distance from number two, it’s in average 30% and if you take a look at the footprint when we are present in 74 countries you can see that the number two of the market is present in less than 50% of the countries that Teleperformance is.

So here we are not saying that we just put a flag on the country just for the simple pleasure to have a presence there or to serve there that’s not our strategy, our strategy is to make money wherever we are. So sometimes this will be struggle, but that’s our strategy. So what does it mean? It means that we are not going to open more countries just for the fact that, okay, let’s put a flag there to open that lose money, that’s not our strategy. If we are able to make money, we open if and if it’s a sizable market we open together – most of the time together with our clients.

So, we have a path of regularly beating market growth. As you can see, we doubled our revenues for the last five years. And we aim to reach €5 billion by 2020. It’s the 19th quarter in a row of strong like-for-like growth, above or equal to 5%. And we are, as said already, we are targeting very specific acquisitions, not much more of the same, but acquisition that could earn large Teleperformance capabilities.

Little bit about China, so the Chinese outsourced market is a $1.5 billion market with a growth between 16% to 17% burn by 2020. And Teleperformance is the most established global partner provider in these market. So if we take together Teleperformance operations and COS we have 5.5,000 employees in 20 sites more than 5,000 workstations, serving in more than 13 languages. And as you can see with a huge growth over the past four years.

And what’s our strategy in the Chinese market? We can explain very simply like in a four – what we call the four boxes strategy. The first one is China – Chinese multinational companies in a global markets, we aim to serve those companies. Second one is U.S. based multinational companies in or entering in China. The third is European multinational companies in or entering in China. And the fourth one are what we call the Global Asia targets, also in China, so targets, sorry. Those are our four box – this is our four box strategy and those are our clients, the gross clients in target market that we aim to serve in the Chinese market.

If we talk about LanguageLine, okay. Additional upside for value creation by expanding, what we call expanding is Teleperformance U.S. sales force in LanguageLine client base cross-sell and up-sell, and Teleperformance worldwide network to duplicate the business model in Europe and China. And obviously Teleperformance’s Visa Processing Business, the TLS business, which offers capital fee to LanguageLine and leverage for sure Teleperformance offshore has experience to LanguageLine and LanguageLine expertise in work at home agents for Teleperformance.

So as an example, we are preparing an offer for prepaid card for TLS clients, okay. So, if they go to – sorry. If they go to some country that we serve that we can offer those, I would say, translation cards for them. And on the other side, in Teleperformance side, we have the opportunity to offer our language capabilities to put in better locations with low cost LanguageLine interpreters.

So talking a little bit about the outlook for 2017, we have and we aim a like-for-like growth above 6%. And with a recurring EBITA of at least 13%, while at the same time maintaining strong net free cash flow.

And just to show the new breakdown by business category, what we call the Core Services and Specialized Services, if you take English speaking market, Ibero-LATAM and Continental Europe and MEA, you can see that the core services, right now they have 9.7% EBITA and in specialized services 29.9% EBITA. And you can see that Europe, even with the growth that we’ve been having, when we take out TLS, Europe still suffers.

And for 2020, I think most of you already know our objectives, our goal, is to be over €5 billion in revenues, true organic growth and targeted acquisition. And revenue share objective for specialized services is to be at least at 20%, while today we have 15%, with an EBITA margin objective of at least 14% by 2020, while at the same time we are aiming to deleverage our balance sheet. As Olivier already, and Daniel already said as well, up to the end of 2017 we aim to be below 2 times EBITDA. That’s it.

I’m going to open to the Q&A.

Question-and-Answer Session

A - Daniel Julien

No question surprise is it.

Kathleen Galliot

Hello, I’m Kathleen Galliot, Natixis, and I have two questions. Does it work?

Daniel Julien

We give microphone that don’t work.

Kathleen Galliot

No, it works.

Paulo César Salles Vasques

Yes, now it works.

Kathleen Galliot

Okay. I’m sorry, so yes, Kathleen Galliot, Natixis. My first question is on the growth in the Europe region. If we consider that China is growing, I mean, above the average rate, could you please comment on the growth rates that you’re seeing in North America right now, which segments do contribute the most to the growth there? And also, still for North America on the mix between onshore and offshore, I understood that you’ve seen in the new contracts more onshore contracts than offshore ones. Is it something that corresponds to a fear of your clients, of measures against offshoring, or not at all?

And the second question would be on the margin in the Ibero-LATAM. I understand that the decline is really small, but if we consider that Portugal, the multilingual hub is growing more and I would have expected it to bear a higher margin than the rest of the activities of the Group, so I just wanted to try and understand the decline in the margin there, please?

Daniel Julien

Okay, I’m going to answer on the U.S. and after they are going to answer the other point. The USA is a question mark for everybody today. As we live, day by day in the USA, it’s also a question mark for us. The – in fact, we didn’t perform as well as we should or we could have in the Europe region in the Q4, and for reasons that are not really linked to the U.S.

In fact, in Q4, the U.S. business was naturally in its organic growth above the plus 5%, but has been impacted and that’s why the organic growth is a little bit below. It has been impacted by the fact that we got significantly less activity in the ACA, Affordable Care Act, Obamacare if you want than previously.

I would say this is due to probably two things. The current mode regarding the Affordable Care Act that exists since the new administration. And but also it’s due to the fact that some insurers decided to reduce significantly their effort on the Affordable Care Act, because it was absolutely not profitable for them, so it’s a combination of factors. The – but otherwise, the USA was behaving very normally.

What was underperforming during the Q4 was our UK business, and our UK business is a mix of three things. At the same time that we were – sorry, cleaning some clients that we’re not profitable, so we were stopping relationships with some clients that we’re not profitable. We got some termination at the same time of clients that were unwanted, and we didn’t have some of the one-off contracts that we had in the Q4 last year.

So basically, in the Europe region, it’s the UK in the fourth quarter that has not delivered well. It’s not something that we’re going to see like a structural recurring point in the future. And finally, the third component of the APAC region, which is obviously, Europe region, which is the Asia-PAC was perfectly aligned with its high double-digit growth. That’s the first point.

Now, the second part of your question regarding evolution between offshore, nearshore. It’s – it goes in both sense. Yes, you may have and we saw that more last year. In fact, last year, we were growing more than cyclically and when I say last year it was in 2015, sorry, in 2015 we were growing more than cyclically, when in 2016 we had an outstanding growth nearshore.

The – again, the political position of the administration is necessarily in the mind of anybody, of everybody, but right now, it has not changed our distribution of business between domestic, nearshore and offshore. We will see in the future. There are many things that are unknown regarding the U.S. today, and they’re unknown not only by us, but they are unknown by everybody.

Olivier Rigaudy

Jumping on Ibero-LATAM, the most important things to be noticed is, you understood that we had a fantastic success in Ibero-LATAM, so we invest a lot in Portugal, in Dominican Republic, in Mexico, in El Salvador, in all of these countries.

So there is a point where you have new facilities coming on-stream that are not just ramped from day one in 2016. So there is nothing to be worried about that. On the contrary, I believe it’s going to nurture the growth starting 2017, from the first day of the year. So no worries about Ibero-LATAM results.

Daniel Julien

Typically, when we have high growth – a very high organic growth in a region, typically there is a gap with the increase of the profitability, because high growth is not only CapEx and opening, but it’s recruiting, training, ramp-up phase, where the profitability is zero or negative of some contracts, for several months.

Paulo César Salles Vasques

Yes, I was going to say that if you take a contract, for example with ramp-up of 12 months, it means that every month, we are training, we are spending a lot of money. And at the end of the day those 12 months represent a huge growth, but in the bottom line, very little. But when it’s stabilized, we start to make money.

Patrick Jousseaume

Patrick Jousseaume, Societe Generale. Three questions, if I may. The first one is just a come back to the relatively weak organic growth in Q4. I understand that you have a – there is a small negative impact coming from healthcare U.S., and a big negative impact coming from UK, is that correct?

Unidentified Company Representative

No, no. Well, yes, it’s true.

Patrick Jousseaume

It’s true? Okay.

Unidentified Company Representative

Exactly. I mean, the biggest impact is UK.

Patrick Jousseaume

I, just wanted to be sure. Second question, with the figures you provide, it’s not possible to have a view on the organic growth of LLS in 2016, so could you provide us with the organic growth of LLS in 2016?

And third question, you have increased the number of employees by 28,000 in 2016. Could you share with us what are the plus and the minus, meaning how many people have you recruited and how many people have left the group, just to have an idea?

Olivier Rigaudy

I’m sure we can give you this answer, but not necessarily right now if you want a clean correct answer, because we don’t have the answer right now on the table. LLS has a good dynamic. LLS has an organic growth that is above – yes, LLS has an organic growth that is above our average organic growth. It’s okay.

I mean, right now, I can tell you something. We are entering in the third month of the year, so we have an absolutely clear picture of the first months of the year, and we are going to have in two days the absolute picture of February, but LLS is not presenting any cloud.

Unidentified Analyst

[indiscernible] Raymond James. Can you give us an idea about your CapEx in 2017? And is LLS changing the model of your CapEx around, I think, 4% to 5% of sales? That’s my first question?

Olivier Rigaudy

So, we have CapEx for 2017 that naturally is going to go down versus the sales, because the pattern of CapEx of LLS is lower, as you can see. And in the meantime, as we have invested dramatically in 2016, we should be probably a little light in 2017. So I don’t know what you have in your model, but from what I’m reading, people are between €170 million, €180 million for the full-year.

Unidentified Analyst

About financial costs, can you give us an idea about the current level of?

Olivier Rigaudy

So as you know, the refinancing of LLS is not totally achieved. We are working on that. We hope to be able to finalize it quickly in the next [audio gap] easier than what we thought at the beginning of the year. We hope to be something between 2.5% and 3% all in for the full acquisition costs. That’s going to be confirmed hopefully before April.

Daniel Julien

There is something that tends to be also a beauty of LLS that we never point out is that LLS has a very smart, elegant and versatile IT platform, allowing to grow significantly with a minimal CapEx, and it’s an IT platform totally designed for work at home. So LLS is most of it’s not in call centers – in interpretation call centers. It’s – they are managing a growing group of interpreters, thanks to a – again, smart IT work at home platform. And the beauty of that is that it costs significantly less than the typical call center infrastructure.

Antonin Baudry

Bonjour, Antonin Baudry. On M&A, you target acquisition in high-value specialized services, but in fact, before you buy visa business, before you buy LLS, I did not know that this kind of business existed. So what do you have in mind when you speak about high-value special services, especially, do you expect to extend your position in the BPO business? So what do you have in mind as a business? Thank you.

Daniel Julien

Okay. That’s a beauty. The beauty is to surprise your public and to make acquisitions that nobody has an idea that this company exists and when specifically when these companies are gems. I can tell you, we precisely know what our targets, how they look like for the future when we are going to reactivate our appetite. Now, we are not going to share it with anybody.

Our definition of the specialized services are again, we remain in our territory, and our territory is again, people serving people in their day to day need versus a service and a product that they deal with every day. Now, there are a lot of categories of people, or categories of needs that are widely underserved, okay.

You – we serve the basic customer service for everybody, but just like a citizen, would you say that the government gives you, deliver you a service like if you were a customer of the government? Mostly not. Who are you? Because the government has no money, okay, government of whatever country, okay.

So there is a place for privatization of services. Privatization of services, what does it mean? It means that the government can still offer the free services, but it takes the time it takes when you have one – just one or two public servants to answer the needs of hundreds of people, or you can take the fast track, and if you take the fast track, you are well served, it goes fast. We process it for you, but you pay.

Just to give you an example, I was really pleased – we were very pleased two weeks ago from our far place, where we live, to read in Les Echos, that the French, [indiscernible] had given and satisfied to the government for managing very well the visa process, thanks to outsourcing, because it helped to save money to the government, while at the same time delivering more visas for people that are spending their money in France. Bravo, this is a stellar performance.

So that’s an example and that’s an example that I can give you today, because it’s the example of TLS. We have many – there are many niche of market like that that exist and that we are going to pursue. And to come to the end of your question, because our positioning in the chain of the BPO is to remain, I would say, in the high-value, critical, interaction. We are not back-office BPO. We are not a back-office BPO company. We are – typically, our DNA is online, face-to-face immediate is interaction.

But in the interaction, you are not just condemned to deliver the plain vanilla, and this is we are – I think we are strong enough in all what exists in terms of plain vanilla, pistachio, chocolate or whatever. We can go now to some exotic flavors that have maybe a smaller market, but with a good price.

Mourad Lhamidi

Mourad Lhamidi from MainFirst. I have three questions please. First one, just a clarification on the UK, is it fair to expect the UK to continue to be difficult because the contracts that are missing will be for the next 12 months?

Daniel Julien

No, no. we think that 2017 UK is going to be okay. Already first quarter the UK depression is reduced by half of what it was first quarter and then it should be erased.

Mourad Lhamidi

Okay. Second question, North America, can you confirm that the growth is above 5% even including the impact from Obama care or, is it what you said?

Daniel Julien

What did I say?

Mourad Lhamidi

You said that North America was up 5% more than 5% in Q4.

Daniel Julien

In Q4, yeah it would have been in this range. It would have been in this range, if we would not have had the depression of the low volume of the ACA or the Affordable Care Act impacting the normal rules of the business. That’s why the growth in the US has been lower. It has been a positive growth, but lower, it has been 3.5.

Olivier Rigaudy

Yes, can I make just a comment Daniel, in regards to if we isolate for example UK the growth was higher than that. It is around 6%.

Fabricio Coutinho

He was asking for the US.

Olivier Rigaudy

On U.S., yes

Mourad Lhamidi

And its effects from insurers reducing affordable care, is it something that you foresee for the next year for example?

Daniel Julien

Who knows. You know you. No. Nobody knows.

Fabricio Coutinho

But the idea that keeps the Obama care has revealed, so probably something else that will be put in place at the time that we might take advantage of it, but we don’t know.

Daniel Julien

Nobody knows.

Mourad Lhamidi

And one technical, what’s your hedging rate on the Mexican peso for 2017?

Olivier Rigaudy

Have you check, let me check and get back to you.

Mourad Lhamidi

Thanks.

Olivier Rigaudy

It is better than the 12 last year. Just as the clear we have been able to take advantage of the depression of the Mexican and Philippine pesos, we don’t disclose this figure, because if you disclose this figure you stop to enter the nightmare with the client and everybody. So, what I am just telling you is that the figures are better than they were last year. We never get the big, but finally either on the Mexico pesos or the Philippine pesos we had improved rates of course versus last year. In the meantime you have more inflation in this country. So you don’t take as always 100% of the depreciation in EBIT margin.

Daniel Julien

And let’s be clear, there are plus and minus, I mean the hedging policy is just an adjustment policy to avoid the work that there are plus and minuses, so at the end of the day that is not what makes the business.

Mourad Lhamidi

I’m sorry one follow-up on TLS and NLS, when are you going to put in place those initiatives, I mean when are you going to start to see some results, the benefits of those initiatives?

Daniel Julien

You know it takes time. Don’t rush us too much. The initiative are already in place than it takes time to make a baby.

David Cerdan

David Cerdan, Kepler Cheuvreux. I have a few question, first one is on your strategy in China, I would like to have your view on to put your share on the biggest Chinese companies such as Alibaba, China Mobile et cetera, can you explain what this is their strategy to also for not call centres and is it possible to make money with this kind of big clients, so obviously first question on China, I have some question regarding Forex, Forex was 106, can you split this number between the different regions and I have a question regarding the tax rate you say that the tax rate should go back to 32% and can you explain why you expect an increase in that rate? Thank you.

Daniel Julien

I am going to just answer China. On China – our first target China is a giant market and we are not aiming at becoming a giant company in China with all its weakness. We are aiming at becoming a super strong profitable company in China without the weaknesses of the giant. What does it mean, the very first thing that we do in China is to select our clients.

The very first client that we want to work with in China and that we work with in China are the multinational companies from abroad China, but that operate in China because they want us to serve the client according to their international standards because it’s part of their competitive advantage and they know what they want and they are ready to pay the price of what they want, and it’s really our first source whether they are US multinational, Europe and multinational, or Asia and multinational, I mean Japanese, Korean and whatever.

Then, when it comes to shine our company, yes, first we are interested to serve the Chinese multinational companies, a little bit in China, but not so much and lot outside of China for their expansion. Why do I say not so much in China? It’s because first in their own country they don’t have the same cultural maturity in terms of sophistication of service, I mean the culture of service is not as developed as it can be in other part of the world and so the level well of expectation, service and price do not match necessarily what we are and we prefer them to work with low profile, local companies rather than to put even our finger into this kind of market.

So the only Chinese company we do work with in China are the companies that want to have a very high profile and want to differentiate their sales themselves by the quality of services and they are ready to pay the fair price and generally there are a few companies like that in China, they are already our clients, but we control the development that we have with them. Knowing that, we are in China for many years, for many years we lost money in China. Now we have very LC business model in China, but we are extremely cautious and China is not a place where you want to be in a possibility of dispute with a local client and I am not going to elaborate more.

Fabricio Coutinho

Commenting on your question, I made a point on Forex, but on tax the idea was just to give some, again a line of 2017 as you understood. Clearly in 2016 we took advantage of some specific item, including some past position we get from the addiction from previous acquisition I am thinking to reduce that will not continue longer be exist in 2017. While in the meantime you will have a full year of longer join solutions that is mainly taxes in US and support the state tax, higher state tax on US, which in California. So as a whole we anticipate a search in the tax rate provided things are staying stable which is my question to do, what was your question about Forex.

David Cerdan

Just on Forex, what is the speed between the different divisions – the different geographic divisions?

Fabricio Coutinho

We have no specific result on Forex. So Forex, your Forex is minus 106, and a portion of that is in your work and there is a portion in EMEA and Latin America.

Olivier Rigaudy

No, I am not going to disclose that as you know, as you know which I know – as you know the main story is always between EMEA and US, whereas others may impact. As mentioned by Daniel we’re living in a world, which is a little complex we are based in, as you can see in Argentina, we are based in Egypt, we are based in Russia, we are based in UK, so the whole story of Forex is difficult to predict. What you need to keep in mind is that, as far as business and transaction risk is concerned there are two main currency, which are at stake are Philippine pesos and Mexican pesos in a smaller way, but after you have a list of JVC, a list of 20 currency…

Fabricio Coutinho

And we don’t open the black box. I mean there should be some black box from time to time at least for the competitor and not to compete.

David Cerdan

I would like to come back on what you said regarding the Mexican peso, as the currency is weaker, does the change of your client to offshore in Mexico, instead of another country or to transform from domestic to Mexico.

Daniel Julien

There are many, many factors that enter in a client decision. And if the currency is weaker, it might, yes not for our existing clients. In our existing clients, and they just moved the company to read. I mean there are thousands of people, there is a factory, we are not going to shut down to restart something that works well in one place or otherwise it would be a nightmare. You know we have a friction. The friction is called our factories and our people. Even if we are a flexible company, but for new prospects, yes of course when you have a currency that is more attractive, it’s more attractive for the new prospect. At the same time it is stuff because the currency is at one point of time week that is going to remain week. So, you need to protect yourself with contracts. I don’t want to see the story that happened to one off our competitors and say like 10 years ago.

What made all in investment in assuring Canada, when the Canadian dollar was at 125, 130 versus the US dollar and then suddenly the Canadian dollar came one to one with the US dollar and then we are making losses and they had to destroy all their industry plans and people and stuff like that to move from Canada to another geography. You know that. That was the story of converging something like seven or eight years ago. I don’t want that to happen to us. So you know there is a time for the variation of currencies and there is a time of the business and the two are not exactly in line.

Olivier Rigaudy

I think we are done.

Daniel Julien

Plus the fact that, excuse me, plus the fact that when you are – and it is normal and unfortunately saying that, when you have a currency that goes down versus the year so therefore the countries that is just nearby the USA over Mexico. So far from gold, so close to the USA, and this is what they say and not me. What happen? The people, if the currency has a devaluation, your manager what do they want? They want a re-evaluation. Your people, what do they want they want a re-evaluation and specifically if you work for US client, so it is – every factor counts, but every factor is mitigated and erased.

If you want to make a long term win-win deal or if you are just bounty hunter, if you are hungry for clients and if you want to take advantage of Mexico you can sell Mexico today at a significantly lower price. Maybe in two years you’re going to be bankrupted, that will be your problem. And maybe your client doesn’t want that because if your client is a joker on the market, who cares, but if your client is a well established leader in this market, he doesn’t want to play with that.

Mourad Lhamidi

Can you please give us your take on the Amazon entering your industry and selling software call centre to clients wanting to manage their customer care, do you have any comments on that?

Daniel Julien

Frankly speaking we will see Amazon is a great company for which we have a lot of respect. By the way they are our clients. Frankly speaking, I don’t see them competing with us seriously.

Olivier Rigaudy

They want to sell software to contact centres.

Daniel Julien

Yes, frankly speaking we see the majority.

Olivier Rigaudy

No.

Daniel Julien

Even Amazon has still to learn a lot, either there is something strange that you can say only after the case, but decades of experience has a value and at the end of the day, this company has more experience in dealing with the complexity of the world and the differences in every specific market that exists and most of the last company’s or new multinational companies and stuff like that and even a company like Amazon on still has a lot to learn in order to be able to deal smoothly with the global workforce in every single market. And frankly speaking, I think that they have a lot on their plate. And that’s it. It is an interesting stuff.

Olivier Rigaudy

I think we are done.

Daniel Julien

Thank you.

Operator

Thank you very much.

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