EuroBusiness Media (EBM): Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, reports results for the full year 2016. Paul Hermelin, welcome. You are the Chairman and CEO of Capgemini. Let me ask you, what are some of the highlights of these results?
Paul Hermelin: I think we progressed on all fronts. It’s a solid year. Growth first: we grew by 7.9%, in line with the guidance we gave in February. And I want to note that on this overall revenue, what we would call the new business lines, like Digital and Cloud, now represent 30% of the group total revenue and grew by 29%, so we are moving the focus on new business. We improved our margin quite significantly by 90 basis points, so nearly 1 percent and we reached 11.5%. I think that’s significant. Thanks to that we could increase our net profit, if I neutralise the one-off tax credit, our net profit increased by 14%, which gives us room to raise our dividend, keeping the same pay-out ratio - historical level of 35% - and we could raise the dividend for the third time in a row to reach €1.55. And I will not forget something that in my view will be memorable: it’s the free cash flow generation. For the first time ever, we reached a free cash flow above a billion euros to reach €1.071 billion, which is a sign of a very mature organisation, very disciplined organisation.
EBM: A solid performance indeed. How is the integration of IGATE progressing and how has it contributed to your performance?
Paul Hermelin: The IGATE integration was the first objective of the year and I think it went very well. First, we not only protected the IGATE client base, but we could grow it. We grew it overall. If I take the top 15 IGATE accounts, they grew by more than 8%, so above the group’s organic growth. Second point, revenue synergies, we had bookings deriving from these synergies above €300 million. Third, on the people front, we didn’t lose a key manager. I think the retention is excellent, all the key managers are there and I think they are motivated to stay. And I would add that we extracted from IGATE a special culture, an appetite for client passion, for their core values, speed and agility, that will enrich the group. So overall, I’m quite pleased, and I will not forget that we had committed on cost synergies and synergies of operating model. We are ahead of the schedule with €75 million of cost synergies, we will deliver more than what we anticipated when we closed the transaction in 2015.
EBM: There are some specific issues in North America and the downward trend in the Energy and Utilities sector. What are your thoughts of that situation and how do you plan to overcome it?
Paul Hermelin: Besides the IGATE acquisition that will lead to a normal increase of our footprint there, in terms of organic growth, we suffered from the very low price of the barrel and a freeze of all investments in Oil and Gas and some trouble in the utilities market. That had an impact of nearly 4 points, so if I neutralise that, we would have grown organically by 3 points. Good, but not good enough. So, I now look at our strengths in the North American market; we did quite well in Financial Service, we did very well in Manufacturing, I don’t think we do as well as we can on Consumer Goods and Retail and some B2C industries. For that, we must invest further in Digital. The market has turned digital. We miss a few ammunitions to do as well as we want in Digital. That’s the reason why we announced today some acquisitions. An acquisition of Idean, which is about digital in B2C industries, to be a studio that will focus on client interface and user ergonomy; and an acquisition of TCube, in insurance. We will do other acquisitions. The clear priority of the group is to resume a strong organic growth in North America. It’s my objective, as set by the Board, it’s the common objective of all the members of the group Executive Committee. The NA growth is my top priority for 2017.
EBM: So, it sounds as if these new acquisitions fit in rather well with your strategy to adapt to today’s changing market?
Paul Hermelin: The market is good, but the market changes every year in IT. So, now, what are the main themes of market changes evolution? First Digital, second Cloud, third Automation. We invest in the three, so it’s about our capabilities, about the talents we recruit, about some skills capability that we may have to acquire. The group has constantly transformed itself, reinvented itself. And so we will in 2017. We have plans for that. We have a leadership team ready for it. I have designed a plan that has been approved by the Board. The group transformed itself to be ahead of the market.
EBM: Just finally, looking forward to 2017, particularly with regard to revenues, free cash flow and operating margins, what are your forecasts?
Paul Hermelin: After four years of solid and repeated progression, we will get further. Growth next year will commit at 3%, including very modest acquisitions. Should we do bigger acquisitions, we will take them into account. 3%: a new margin progression, and we target a range of between 11.7% and 11.9%; free cash flow above €950 million; and on the earnings per share, I think we should target normalised EPS, something in the range of €6.10, which would be another significant progression.
EBM: Paul Hermelin, Chairman and CEO of Capgemini, thank you very much.
Paul Hermelin: Goodbye.
