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Substantial free cash flow

  • 17 Feb 17

Despite a soft Q4 16 with organic revenue up 1.9% at constant currency, Capgemini achieved its guidance for revenue growth (+7.9% at constant currency vs +7.5-9.5% targeted) and the operating margin (11.5% of revenue vs 11.3-11.5% targeted). Igate contributed for 12 months (vs 6 months in 2015). Q4 16 figures: Revenue reached €3,263m (-0.2%, +1.9% at constant currency) and new orders were €3,879m (+3.9%, +5.4% at constant currency) representing a book-to-bill ratio of 1.19 (vs 1.14 in Q4 15). The change in overall revenue included a negative currency effect (-2.1%) mainly attributable to the pound vs the euro and a moderate change in the perimeter (+0.3%). Organic growth slowed (+1.6% vs +2.9% in 9m16) and was above the trend in Q4 15 (+0.1%). At constant currency and current perimeter, revenue growth (+1.9%) came mainly from Applications services (+4.9%) and Technology and Engineering services (+1.2%) to a lesser extent. Conversely, revenue decreased in Consulting services (-1.7%) and dropped in the Other Managed services (-5.3%). By geographic area, Europe was a growing region and France was the best performer (+5.9%), largely ahead of the UK/Ireland (+1%) and the rest of Europe (+2.4%) which included a slowdown in Benelux. North America was disappointing (-3.1%) due to the on-going weakness of the energy/utilities sector and slight growth (+1.1%) excluding this sector. Conversely, the Asia Pacific/Latin America area was fast-growing (+11.7%) driven by the strong development in financial services in Asia Pacific. FY2016 figures: Based on revenue of €12,539m (+5.2%, +7.9% at constant currency, +2.6% organically), the operating margin surged to €1,440m (+14%) and the margin rate improved to 11.5% of revenue (vs 10.6% of revenue in 2015) which was at the top of guidance (11.3-11.5%). New orders reached €13,027m (+13%, +14.5% at constant currency) representing a book-to-bill ratio of 1.04x. The order intake benefited from booking synergies related to the integration of Igate (>€300m). The currency impact was negative on revenue: -2.7pts, o/w 80% of this related to the depreciation of the pound vs the euro. The following growth rates are at constant currency: - The digital and cloud revenue continued to increase significantly (+29%) and represented 30% of group revenue. - By division, the Application Services and Technology/Engineering services were up 10.6% and 6.9% respectively (including the impact of Igate) while the Consulting services and Other Managed Services increased by 2.7% and 2.2% respectively. In Other Managed Services, there was a organic decline attributable to the UK public sector as expected (re-insourcing at HMRC), the weakness of the traditional infrastructure services due to the transition to the cloud and, finally, lower equipment resales (not in Q4 16). - Revenue increased in all geographic areas (North America: +14.5% including Igate on 12 months, France: +5%, UK/Ireland: +4.1%, Rest of Europe: +5.3%, Asia-Pacific/Latin America: +8.2%). The improvement in the operating margin (+0.9pts to 11.5% of revenue) was attributable to all divisions and all had double-digit margin rates (Consulting Services: +1.6pts to 10.7% of revenue, Sogeti: +1.2pts to 12.8% of revenue, Application Services: +0.8pt to 12.7% of revenue, Other Managed Services: +0.4pt to 10% of revenue). The picture was positive in all geographic areas (North America: +0.5pt to 15.4% of revenue including Igate for 12 months, UK/Ireland: +1.2pts to 14.6% of revenue, rest of Europe: +0.3pt to 10.5% of revenue, France: +1pt to 9.1% of revenue, Asia Pacific/Latin America: +2.4pts to 6.6% of revenue). Operating profit reached €1,148m (+12%) after higher restructuring costs (€-103m vs €-81m in 2015), amortisation of intangibles related to acquisitions (€-68m vs €-45m in 2015), acquisition/integration costs (€-69m vs €-55m in 2015). Group net profit reached €921m (-18%). The apparent decrease was due to the one-off non-cash gain of €476m related to the reassessment of deferred tax assets on US tax loss carry-forwards accounted in 2015. Excluding this item, group net profit grew by 14%. Net debt was reduced to €1,413m (-20%) at year-end 2016 thanks to substantial operating cash flow and FCF. The operating cash flow increased to €1,319m (+31%) and FCF was substantial at €1,143m (vs €825m in 2015) after stable net capex (€176m). Cash-out flows included principally the dividend paid (€229m) and share buy-backs (€340m). The proposed dividend was €1.55/share, +15% (3% above our expectation).

Guidance revised upwards

  • 27 Jul 16

Capgemini had a good H1 16 including growth acceleration in Q2 16, in line with expectations. H1 16 earnings. - New orders were strong (€6,341m), above revenue (book-to-bill ratio: 101%). - Revenue was €6,257m (+11.6%, +14.4% at constant currency). Organic growth was 3.3%, o/w +3.8% in Q2 16. Total growth was driven by the digital/cloud offerings (28% of revenue, +32% at constant currency, including the impact of Igate). - At constant currency, including Igate, Application services (60% of total revenue, +17.2%, o/w +18.3% in Q2 16) continued to benefit from demand for the digital and cloud offerings. The digital transformation also had a positive impact in Consulting services (4% of total revenue, +8.1%, o/w +8.8% in Q2 16, close to organic growth). The Technology & Engineering services revenue (15% of the total revenue) grew by 13.1%, o/w 15% in Q2 16, and Other Managed services (21% of total revenue) had a lower growth rate (+9.3%, o/w +7.5% in Q2 16). By geography (at constant currency, including Igate), revenue growth was dispatched as follows: +36.2% in North America (Igate effect), +8.6% in the UK/Ireland, +4.8% in France, +6.9% in the Rest of Europe, +10.3% in Asia/Pacific and Latin America. - The operating margin surged to €638m (+31%) corresponding to a margin rate of 10.2% of revenue (vs 8.7% of revenue in H1 15), benefiting from the integration of Igate (consolidated in H2 15) and cost synergies but not only (growth in the digital and cloud, further industrialisation). - Operating profit increased to €510m (+14%) after higher acquisition and integration costs (€-38m vs €-9m in H1 15) and amortisation of intangible assets acquired related to Igate (€-35m vs €-9m in H1 15). Conversely, restructuring costs were rather similar yoy (€-31m vs €-35m in H1 15). - Group net income increased to €366m (+26%) after net financial costs (€-62m vs €-41m in H1 15) and lower income tax expense (-31%) due to the recognition of a deferred tax asset of €32m. The operating cash flow was positive at €113m (vs €-40m in H1 15), including higher tax paid (€-94m vs €-39m in H1 15). Free cash flow was €39m (vs €-98m in H1 15). Sigificant out-flows included share buy-backs (€-158m) and the payment of the dividend to shareholders (€-229m). On 30 June 2016, net debt was €2,278m (vs €1,767m at year-end 2015).

Organic growth acceleration driven by digital/cloud

  • 27 Apr 16

Q1 16 revenue Revenue reached €3,092m (+11.8%, +13.9% on constant currency). The change in scope relating to the contribution of Igate was significant (+11%). The Group continued to benefit from its fast-growing Digital and cloud offerings (+28% including a small contribution from Igate). Organic revenue growth was good and accelerated (+2.9% vs +1.5% in Q1 15). The order intake reached €3,128m (+17.6% on constant currency), broadly equivalent to revenue. On constant currency and including Igate, Application services (59% of total revenue, +16.2%) continued to benefit from demand for the digital and cloud offerings. The digital transformation also had a positive impact in Consulting services (4% of total revenue, +7.4% corresponding to organic growth). The Local Professional services and Other Managed services (respectively 15% and 22% of total revenue) enjoyed a similar growth rate (+11.2%) considering Igate’s respective activities. The total workforce increased by 24% yoy and the headcount “offshore” surged by 44% yoy reflecting principally the integration of Igate (c.30,000 employees o/w c.80% “offshore”). On 31 March 2016, there were 182,908 employees, o/w 55% “offshore” (100,000 employees), mainly in India (vs 48% of the headcount on 31 March 2015). The unchanged attrition rate at the Group level (16.7%) included a lower attrition rate in Consulting services (-2.8pts to 16.5%) and a higher attrition rate in Application services (+0.3pt to 16%).

Higher operating margin than expected

  • 19 Feb 16

In 2015, Capgemini integrated Igate (1 July 15) which helped the significant increase in the operating margin rate (1.4pts to 10.6% of revenue). Nevertheless, Capgemini on a standalone basis contributed largely to the margin improvement (+0.8pts to 10% of revenue). 2015 figures: Based on revenue of €11,915m (+12.7%, +1% organically), the operating margin surged to €1,262m (+30%) and the margin rate improved to 10.6% of revenue (vs 9.2% of revenue in 2014), above the 10.3% guidance. New orders reached €11.5bn (+5%), o/w €3.7bn in Q4 15 representing a B2B ratio of 1.14. - Organic revenue increased in all geographic areas (North America: +7.8%, France: +1.2%, Rest of Europe: +7.4%, Asia-Pacific/Lagin America: +6.5%) except for Benelux (+0.1%) and the UK/Ireland (-13.9%), which was penalised by a change in the structure of the Aspire contract. The Application Services and Consulting services were fast-growing (respectively +6.3% and +5.8%) while the Local Professional Services were rather flat (+0.3%) and the Other Managed Services plunged (-10.9%) attributable to the UK. - The improvement in the operating margin at the group level (+1.4pts to 10.6% of revenue) was attributable to the North American operations (+2.3pts to 14.9% of revenue including Igate), the UK/Ireland (+2.1pts to 13.4% of revenue) and the rest of Europe (+1pt to 9.6% of revenue). The operating margin rate decreased in France (-0.3pt to 8.1% of revenue) and Asia-Pacific/Latin America (-1.9pts to 4.2% of revenue). The operating profit was up to €1,022m (+20%) after higher restructuring costs (€-81m vs €-68m in 2014), acquisition-related amortisation of intangibles (€-45m vs €-20m in 2014), acquisition and integration costs (€-55m vs €-5m in 2014) and a goodwill impairment related to the Latin American operations. Group net profit reached €1,124m (+94%) after higher net financial expenses (€-118m, +69%) and a one-off non-cash gain of €476m related to the reassessment of deferred tax assets on US tax loss carry-forwards. Capgemini ended the year with net debt of €1,767m, including the debt brought by Igate (vs net cash of debt of €1,218m in 2014). The operating cash flow increased to €1,004m (+23%) and FCF was €825m (vs €673m in 2014). Cash-out flows included principally significant net investment in shares of €3,392m. Capgemini paid $3,961m for the acquisition of Igate. Share buy-backs of €150m are planned in 2016 (subject to approval at the shareholders' meeting) over a multi-year programme of €600m. The objective is to attenuate the dilution related to the employee share programme and incentive instruments.

A more positive picture than appearances

  • 29 Oct 15

Capgemini had a slight increase in organic revenue in Q3 15, in line with the trend seen in H1 15. The interesting achievement was the strong development in Application services (60% of total revenue). In Q3 15, revenue reached €3,036m (+17.2% and +1.5% organically). There were a positive translation currency effect (+5%) and a change in perimeter with the consolidation of Igate on 1 July 2015. Organic revenue growth was only 1.5% (vs +2.8% in Q3 14) due to the drop in revenue of Other Managed services (-13.7% vs +0.6% in Q3 14) which was affected by the change in the structure of the Aspire contract in the UK and the difficult economic environment in Brazil. Local Professional services were weak (+1.4% vs 0% in Q3 14). Conversely, Application services (60% of total revenue) were buoyant (+8.2% vs +5.1% in Q3 14) and Consulting services (4% of total revenue) performed well (+6.7% vs -3% in Q3 14). New orders reached €2,499m (+20% at constant currency and including Igate). The structure of the order intake tends to change with a higher portion of small-sized projects instead of multi-year managed services contracts. On 30 September 2015, there were 178,045 employees. The strong increase in workforce (+24% ytd) was mainly due to the integration of Igate (c.30,000 employees) which has significant 'offshore' staff in India. Capgemini's workforce in global production centres represented 54% of the total (>96,000, o/w 85,000 people in India). According to management, the integration of Igate is on track. In the short term, the priorities of the new group (Capgemini+Igate) are the implementation of a full vertical model in Financial services, capitalisation on the best practices in North America application services and the creation of a new business unit called Business services that will comprise BPO and the Igate ITOPS (a service that integrates technology and process requirements).