EuroBusiness Media (EBM): Capgemini, one of the world’s foremost providers of consulting technology and outsourcing services reports results for the first half of 2015. Paul Hermelin, welcome. You are the CEO of Capgemini. What are some of your key takeaways from the first-half results today? Has your optimism of 6 months ago been reflected today in your H1 results?
Paul Hermelin: I think H1 shows a good set of very positive figures and achievements. First, on the topline: we are growing in line with our expectations and guidance, we are even raising a little bit the guidance. We experienced some good growth, notably I want to point at North America where we grew again more than double digits - 12%-, so that’s quite remarkable. And in spite of some anticipated revenue we also see a very strong growth in emerging markets: Latin America, in Asia Pacific 15%. Europe is a little less active but everybody knows that, so I think that’s pretty good. But what is in my view a big step in the Group history is 80 basis points of progression for our operating margin. That gets us now in line for my 10% ambition. Our guidance is getting close and I think that’s very encouraging to show that the Group status is one of the leaders of the profession and I think the Group will rapidly be a double-digit margin company, and that’s quite rewarding.
EBM: You just completed a $4 billion acquisition of US IT firm IGATE, how are you facing up to the integration challenge?
Paul Hermelin: First, IGATE is a remarkable company. That explains why we just chose to spend $4 billion. So what do we get with IGATE? We get a strong reinforcement of our footprint in North America. As we just saw, we are growing well in the US but we are something like number 17 before that acquisition. With IGATE, we move to number 12. And I want us to join the top 10 organically. So now we must complete that. So it’s a story where revenue synergies are more important than cost synergies. Because we are very complementary, nearly no client overlap. So it’s about creating synergies, it’s about people collaborating, it’s about selling the Capgemini offer into the IGATE customer base, and vice versa. So that’s based on collaboration, that’s why we have just launched a big set of work streams to focus on the different sides of collaboration. Very exciting. I just chaired a meeting with 80 people from both origins. Everybody was very positive, very excited. The absolute mandate is that we must be ready to operate as one company as of January, which means that we will have to prepare the budget as one company. So the detailed design of the integration will be available by late September so that we work in January 2016 as one new Capgemini company enriched with IGATE talents.
EBM: What is the outlook for your emerging market business, particularly in Brazil where you have some major contracts?
Paul Hermelin: So, frankly, we say Asia Pacific will remain a growth territory. I hear some anxiety about China. We’re not that exposed to China so the rest of Asia will fuel growth. In Latin America, frankly, the Brazil turmoil will hit us. I would not think we will shrink, I would just say I don’t expect much growth. The relationship with Caixa - our main client and a shareholder - is excellent. So I think we have some assets to resist the turmoil but it’s a shaky picture and a shaky industry for a while.
EBM: What is your view of your European business, particularly your redesign contract in the UK?
Paul Hermelin: So, the first point is in the UK, contrary to the first quarter, we are growing again. If you neutralise that huge contract - I remind you that what we lost in that contract are what we call technically pass-through-revenues. We sub-contracted a lot of services to large companies like Fujitsu, with no margin, no benefit. Our client asked to contract directly with them, so no pain for the company but that hits the topline. And it’s even beneficiary for the margin. So no worry there. Besides that in Europe, we have some solid rebound in Nordic, Germany, even southern Europe – Italy, Spain - and we have a soft region between Benelux and France. Some good news, some less good news. I would just say we’re pretty flattish in that part and I don’t see that changing much in the rest of the year.
EBM: How are you using Digital to further grow your business in industrialisation and in innovation?
Paul Hermelin: This year the fashion is Digital. Last year it was Big Data, the year before that the Cloud. We call all that innovative skill, and we regroup that under the acronym SMAC which stood and stands today for Social Mobility Analytics Cloud. And I think that’s growing very fast. The growth in the 2nd quarter is 25%. These innovative services represent now more than 20% of Group revenue, which puts us at the very vanguard of the industry: 20% is a high percentage, and it will grow further. What I see in addition is that even in the soft economies like Holland and France, we are growing rapidly in Digital services. So that’s something that groups our consulting skills and technology skills, because we no longer sell to the CIO or the IT department, but to the end-user - that’s why we need consulting contribution – and that’s growing very, very rapidly. Today the most exciting opportunities are on digital customer, and tomorrow it will be on digital manufacturing, so it’s there to last even if next year we will find new naming for that.
EBM: And finally what is your macro-economic outlook and what is your updated guidance for the rest of the year?
Paul Hermelin: The first one is, we have built our guidance based on a constant outlook. We do not expect a fast acceleration of Europe. We don’t expect either a big slowdown in Asia caused by the recent Chinese alarms. Based on that constant outlook, we just raised our guidance on many aspects: we raised our revenue including IGATE in the second half - since IGATE has been fully acquired by the Group on July 1st -; growth above 12% in current figures; margin, 10.3 taking into account IGATE contribution in the second half; and we maintain our free cash flow guidance of more than €600 million.
EBM: Paul Hermelin, CEO of Capgemini, thank you very much.
Paul Hermelin: Thank you Adrian.
