Capgemini Posts 2008 Revenue Growth of 5pp and Increase in Operating Margin

Capgemini recently posted its full year 2008 financial results, creditable performance given the heavy economic global turmoil that has affected every country and industry all over the world.

2008 revenue at EUR 8.7 billion was up 5% on local currency terms versus 2007 revenue, but was flat on Euro terms to the reported 2007 revenue of EUR 8.7 billion, as the Euro and GB Pound had appreciated against the US dollar at least for the first ten months of 2008. Operating profit as a percentage of revenue actually increased from 7.4% in 2007 to 8.5% in 2008, and operating profit in EUR terms increased from 493 million to 586 million. Capgemini decreased somewhat its cash position, holding EUR 774 million of cash at end of 2008 versus EUR 889 million of cash at end of 2007. Consulting and Outsourcing bookings rose to EUR 9.3 billion in 2008, up 4% from 2007.

The board recommended dividends of EUR 1 per share, and with the share at about EUR 21 today (the lowest in 3 years), the dividend yield is a healthy 5%.

By geography, North America local revenues were up 3.4%, with operating margin at 5.8%, slightly down from 2007; Europe and the rest of the world posted like-for-like revenue growth of 11.6%, but there was a slight drop in operating margin (14.2% versus 15.0% in 2007).

By service line, Local professional services (Sogeti Group) had 9.1% revenue growth and 2008 operating margin of 12.9%. Outsourcing recorded sales growth of 4.6%, and operating margin continued to rise, reaching 5.4%. Consulting had revenue growth of 2.4% but strongest margin improvement (12.8% on 10.5% in 2007). Technology services had growth of 4.1% and its operating margin was up by more than a point to 10.2%.

Capgemini actually increased its headcount by 8,113 staff between December 31, 2007 and December 31, 2008, with almost half of new recruitment being carried out in offshore countries, mainly in India, but also in Poland, China, Morocco and South America. Offshore employees were 28% of total Group headcount, accounting for 25,275
people out of a total 91,621 on December 31, 2008

In terms of 2009 outlook, Capgemini remained cautious, saying, “In a climate of high uncertainty, the Group considers that it does not have enough visibility beyond the first half. For the first six months of the year (2009) like-for-like revenues could see a modest decline. This would only have a limited impact on the operating margin, which should remain above 6.5% (operating margin for the first half of 2008 being 7.6%).

These are solid, but not outstanding results as posted by Accenture or the double digit revenue growth reported by the Big4 firms. Nonetheless, revenue growth coupled with operating margin% improvement, growth in bookings and good cash positions were creditable achievements in the face of relentless bad news obviously hitting each and every of Capgemini’s clients. More so, consulting is the first thing that clients dispense with in hard times, so any growth is quite remarkable. It is sobering to see low visibility in 2009, which could prove to be even more challenging than 2008. It forecasts a modest revenue and operating margin% decline, and just if that were to happen, would be something that the company can rest content with in a very tough year.