Profits tumble at Capgemini, but growth ambitions remain

Public sector ICT outsourcing giant Capgemini has reported a 60% slump in profits for 2009, but its CEO argues that it is poised for recovery as the recession ends.

 

Revenues fall 5.5% to €8.37 billion while net profits fell to €178 million from €450 million the previous year. This drop was not helped by the firm spending €213 million restructuring the business, including laying off just over 5000 people and moving many of its operations and a third of its staff to lower-cost regions like India.   

 

Consulting was the worst hit business division for Capgemini with sales down 14.7% year on year, while  outsourcing, which accounts for roughly 36% of revenue, only grew by 0.3% The firm predicts a further 2 to 4% decline in revenues 2010, while operating margins are expected to slip to between 6 and 6.5% from 7.1%  last year. 

 

“Demand is still relatively mediocre, but there are signs of a thaw,” said CEO Paul Hermelin. “We are seeing far less price negotiation and we are starting to see bigger systems integration deals in the pipeline. It has been mainly €2 million to €10 million deals last year but now there is a surge for €10 million to €50 million deals,” said chief executive Paul Hermelin. 

 

“Positive signs included stabilising prices, an upturn in demand from financial services, a more dynamic US market and an increasing appetite from clients for larger projects,” he said.  “These signals should gather speed in the second half 2010 when we expect to return to positive growth.”

 

Although Capgemini has multiple public sector engagements – most notably at HMRC – the shoots of recovery are being seen elsewhere. "The first sector that has resumed investing are banks,” said Hermelin. “We all know that the finance industry has started to recover but still acts a little like they used to act before the crisis."