EuroBusiness Media (EBM): Capgemini, a global leader in consulting, technology and outsourcing services, reports full-year results for 2011. Paul Hermelin welcome, you are the CEO of Capgemini. What are your comments on the group's results for 2011?
Paul Hermelin: The first comment - and I think I say it with some satisfaction - is that we are totally in line, or slightly ahead, of all the guidance we provided all year long. It has been a demanding year, a demanding market, but our growth is slightly above our guidance. We had
guided for a 9-10% growth, we are close to 12%, published growth, including acquisitions. The organic one ends at 5.6%. We were guiding above 5%, so slightly ahead. We delivered the margin we said, it’s 7.4%, but that includes a small acquisition, so it’s slightly ahead again. And the net is quite strong with a growth of 44%. In addition, we had a difficult
situation of cash collection at the end of June and we corrected it with a pretty strong cash effort by December. So we end the year with a solid, again positive, cash situation, ahead of market estimates and even of our guidance. So, quite happy with the results.
EBM: You’ve been counting on having good growth in BPO. How is that panning out?
Paul Hermelin: First point is, historically, we have grown a strong BPO arm in finance and accounting. They are now working on truly standardized, very innovative processes. So that’s what I would call a platform-based BPO and that explains why we bought a small company that masters IP on cash collection. So we will invest in enriched BPO. And beyond BPO we
are looking for new development in terms of output-based pricing, transaction-based pricing – what we call new business model. Prosodie is the first step, we will get further, we will invest further, because we want to be at the forefront of the customer demand.
EBM: You’ve done a number of acquisitions in the last 18 months? Could you provide an update on these?
Paul Hermelin: We did acquisitions of different sizes, frankly. Some of them were quite small to help us enter new markets. Some of them were more sizeable. The biggest one of 2011 was Prosodie, leader of customer interaction, transaction, real-time 24/7. That works pretty well
and I’m quite happy. Today, we will have embarked €360 million of revenue with an average margin of 11%, so it’s accretive to the group and growing more than the rest of the group. So I’m quite happy with the acquisition string that we did: let’s say controlled acquisitions, but positioning us better for the future.
EBM: Do you expect that your main growth levers, the Global Services Lines, will continue to deliver growth in 2012?
Paul Hermelin: Yes, we made an effort to launch new alliances, new top-line initiatives, new offerings, all targeting high added value segments. That has worked very well in the last two years. It’s a true success and we are getting the benefits of that. So we will probably launch one new offering this year. We are doing very well on Business Intelligence and expanding that. And with some acquisitions, like BICG in the US and Avantias, we are now reaping the benefits of that investment. On Testing we are now referenced as the number 1 worldwide, so that proves very right too. Business Process Management is promising. Smart Energy – I think one of the analysts ranked us as number 1 worldwide. So I think we get the benefit. That
way of mobilising the entire group on advanced offerings with a strong back office, be it in an emerging market like India, and strong and tight alliance management have truly worked well at the scale of the group and we will continue.
EBM: What is your sense of the situation in the US as we begin 2012? Are things looking up?
Paul Hermelin: Yes, we had a pretty strong fourth quarter: not only a double digit growth, but a 17% growth in the fourth quarter. As we know, it’s a weak quarter in the US because of the Thanksgiving break, plus Christmas break. But year on year, comparing apple to apple, we will have grown by 18%. I was there last week. We recorded a very normal, very satisfactory
growth. We have beaten our objectives of bookings in January. So the market there looks good. What I would just say is that we might discuss further after the next presidential election. My impression is that 2012 will be a good year for the US.
EBM: And what about the outlook in Europe? Should we expect a difficult year for your European business due to the sovereign debt crisis?
Paul Hermelin: So a pretty diverse situation. For us, nothing new there, but Holland remains tough, I would say a difficult market. In the UK we have some new decisions, but the private sector is doing well. The public sector is still running after savings, so it’s not the easiest market. And then, a contrasting situation: we have a good situation in Scandinavia and in
Germany. The big question will be France, and notably the impact of the French presidential elections on the business. Nobody knows yet. The start of the year is OK.
EBM: What is your update on the prospects for large outsourcing deals, or renewals? Does the Aspire renegotiation present a significant challenge for growth this year?
Paul Hermelin: The first point is that, clearly, customers tend to slice large outsourcing opportunities into pieces. So they would rather contract with several providers. The second point is that we created a specific unit for BPO as a strategic business unit, a specific unit for Infrastructure and now we must help them to work together for some large deals that can
still exist. But overall, I would just say that the market is moving for smaller deals. The next point – and the largest impact for us in 2012 – will be the Aspire renegotiation, which is now done, closed. We’ll be one of the first service players having closed a full agreement with the UK government. It leads to major changes in the structure of the contract. We are confirmed
as the sole service integrator for Her Majesty’s Revenue and Customs (HMRC), which is a large tax department. But they asked us to open competition and to have the right to direct contract with what were our existing subcontractors, and we have accepted that. So, we have
finalized now a pretty comprehensive agreement with productivity gains, concessions on both sides, but it will remain a reduced, but very healthy contract and HMRC will remain our main customer, our number 1 customer. And that will allow us to compete with renewed energy, because we have a large pipeline of opportunities in the UK public sector, nearly half a billion
euros. And I hope that building on that agreement, we will compete with some success.
EBM: You’ve hired many newcomers last year. Will this continue?
Paul Hermelin: I think so. I think we should maintain the effort of embarking young graduates, whatever the economic conditions. If we happen, because the demand slows down, to reduce hiring, we will maintain on-boarding young people. That’s a priority.
EBM: All in all, given that you want to compete with the biggest players of your sector – what you call playing in the Champions League – what is your perception of the first weeks of this year? What is your outlook and guidance for 2012? Are margins safe this year?
Paul Hermelin: The first point is working for large customers that are all embarked in a globalization journey, they still invest today. So we are in front of a customer that still invests. I don’t say they feel safe. They may postpone some investments, but the mood is still for investments. So today people start the year with a good mood and feeling that there is a market. Now, if the uncertainties rise, they may delay some investments by a few weeks or a few quarters. That is how we will monitor the year. But the group has become more resilient than it was in the past. So we look at the year with prudent optimism. Let’s say that, notably because of the Aspire renegotiation, we will only record a very limited revenue growth to
compensate the change of perimeter of the Aspire contract. And regarding margins, we think we will improve margins, but with all uncertainties regarding H2, we would rather not quantify it at this time.
EBM: Many companies are suspending their dividend payment because of uncertainties about the future. What will be your dividend policy?
Paul Hermelin: We thought, in spite of a surge of our net result by 40%, to maintain the dividend. So we maintained the level of the dividend equal to last year at €1 per share. That’s what the Board has decided to propose to the General Assembly. Then we are back to a pay-out ratio which is back to normal. And I think when a company has a strong balance sheet and
a strong cash position, it’s pretty normal that we reward our faithful shareholders with a fair dividend.
EBM: Paul Hermelin, CEO of Capgemini, thank you very much.
Paul Hermelin: Thank you.
