EuroBusiness Media (EBM): Capgemini, one of the top IT services vendors in Europe and the world’s foremost provider of consulting, technology and outsourcing services, celebrates this year its 50th anniversary. Today the group announces the results for the first half of 2107. Paul Hermelin, hello. You are the Chairman and CEO of Capgemini, what are the highlights of these first-half results?
Paul Hermelin: I’m quite pleased with the second quarter, consequently the first full half-year of 2017. The momentum that we saw starting in the first quarter has amplified in the second quarter, so growth has a little bit increased. We delivered 3% constant currency growth, which is our guideline for the year with a little better in the second quarter. Another acceleration of Digital and Cloud, the new service lines that now represent 35% over the first half, and even 37% in the second quarter. The acceleration of our margin, as we promised it, and good cash flow. So, a solid first half.
EBM: As you just mentioned, you have guided towards a 3% revenue growth this year. You’ve also guided for 11.7% to 11.9% margin, as well as free cash flow exceeding €950 million. So my question is, what is driving this projected revenue growth and how are you achieving these targets?
Paul Hermelin: The growth comes first from Europe. Europe is very solid, the demand is strong and we are doing well; we have double-digit growth in Germany, Italy and Sweden, so we have really some engine for growth in Europe and the demand remains very strong. In the US, we are improving, we are back to positive figures and we expect that to accelerate a little bit. In emerging countries, let’s say Asia-Pacific, it’s solid; Latin America still under question with the Brazilian question. But I would just say overall the picture is solid, the demand for new services is there and we managed to gain a little share on traditional services.
EBM: What can you tell us about your portfolio rotation to Cloud and Digital solutions?
Paul Hermelin: My definition of Digital is a little simplistic. It’s the technology when it’s bought by the business, no longer by the IT department. Actually, the IT department supports that effort. So overall now we say 37%. This is now a big share of the group revenue and its growing 21%, so it’s booming. So, what do we see? First, as we saw initially, these are the new customer services, the new customer experience, the journey, with digital marketing, the support for digital channel, this is moving very fast. We have seen now the emergence of a second digital pillar, which is digital manufacturing, so this is production and the supply chain. We do well, we made acquisitions, we have reinforced our service lines, we have won some beautiful deals with very first class logos, be it in banking or in retail, so we are doing pretty well and I think the group is really one of the leaders there.
EBM: At your full-year results presentation, you indicated that your top priority for 2017 was to resume strong organic growth in North America, possibly through further digital acquisitions. Given the issues we are facing in energy and utilities over there, what progress are you making?
Paul Hermelin: If you remember, we ended last year with poor growth, actually a decline, we were still slightly in the red in Q1, -0.2%. We have now reached +1% in Q2, so we are back to black figures. We can today say we aim +2.5% for the third quarter, which confirms our promise of February, trending towards mid-single digits by year-end, so the US will be back.
EBM: And what is your outlook for business growth in the rest of the world?
Paul Hermelin: Today, as I said, we still bet on a strong Europe and the same geographies. In terms of sectors, we see a strong demand in financial services. Whatever some competitors say, it’s solid. Good demand in manufacturing and the return of consumer products and retail. So, at the end, this is enough to fuel good growth.
EBM: What is your outlook regarding Brexit? Could there also be a business upside, as companies may need IT updates to handle Britain’s departure from the EU?
Paul Hermelin: Today, we are positive and nicely positive on the private sector, which is a little bit against what everybody predicted a year ago. But I would just say, we start to see a little bit of wait-and-see in retail. So far it has not impacted us, but we remain prudent for the second part of the year.
EBM: We have spoken about growth, but in a demanding environment, competitiveness is also key. What progress are you making?
Paul Hermelin: We should think of the group as a two-side story. We have the buoyant new Digital and Cloud, and for the rest, we have some volume growth but some real tough demands from clients on productivity and price. So, we must fuel our productivity with energetic decisions about automation and a strong pyramid management, resource supply chain – a lot of effort for our people. So, it’s difficult, because we manage a group where 37% of the group is really on a booming market - where it’s about recruitment and growth - and a little more than 60% of the group is fighting for productivity, but that’s the market today.
EBM: You’ve recently made four bolt-on acquisitions. What further M&A activity might you pursue?
Paul Hermelin: You saw that we acquired four companies in Q1. In Q2 we have looked at a little bit larger entities. In my view, they were not truly digital, it was just a little bit of digital paint on the cover. So, we are back on focusing and we will announce soon a few additional small structures but very high-end digital entities.
EBM: Paul Hermelin, Chairman and CEO of Capgemini, thank you very much.
Paul Hermelin: Thank you.
