Capgemini third-quarter revenues grow 2.8% to €2.59bn

IT services provider Capgemini posts 2.8% revenue growth in Q3 2014 to €2.59bn with strong UK and US demand

French IT service provider Capgemini has posted a 2.8% revenue growth for the third quarter (Q3) of 2014 to €2.59bn, thanks to demand for its application services in the UK and in North America.

The system integrator’s application services division – which accounts for 55% of its total group revenues – grew 5.1% after enterprise application projects in the UK and in North America. Meanwhile, growth in its “other managed services” division – which represents 27% of the total revenues – remained flat (0.6%) and consulting services segment (4% of group revenues) contracted 3%.

Capgemini’s regional revenue breakdown showed UK and Ireland revenues grew 4% and North America grew 11.9%, thanks to demand from financial services, energy and utilities, as well as in the retail and consumer goods sectors.

“In spite of an economic environment which remains mediocre in Europe, Capgemini reports strong performance,” said Paul Hermelin, chairman and CEO of Capgemini Group.

The latest quarterly growth is Capgemini’s fifth consecutive quarter of organic revenue growth year-to-year, driven by growth in its services portfolio such as business process outsourcing (BPO), application and infrastructure services, which collectively made up 82% of the service provider's Q3 2014 revenues.

Strategy pays off

The strong Q3 performance is an indication the company will achieve its projected organic revenue growth of 2% to 4%; and operating margin rate between 8.8% and 9.0% for 2014, said analysts.

According to consulting firm Technology Business Research (TBR), Capgemini’s strategy to innovate its offerings and improve its competitiveness through industrialised services and automation will help it reach its profit goals.

Bookings for strategic offerings – such as cloud, mobile, big data and analytics, digital customer experience, and industry-specific and intellectual property (IP)-rich systems – increased 17% year-to-date. “This indicates Capgemini’s business value proposition attracts clients in Europe and North America and will contribute to the near-term revenue growth,” said TBR analyst Elitsa Bakalova.

“Capgemini continues to collaborate with partners to innovate its offerings with cloud, big data and analytics and mobility capabilities and set up the foundation for its expansion in mobility through industry-specialised offerings that cover the consult-build-run cycle,” Bakalova added.

Deals and services

Among the Q3 industry collaboration highlights for Capgemini were its partnership with VMware to bundle its consulting and mobile services with VMware’s mobile device management capabilities, including its AirWatch EMM software. Capgemini collaborated with Oracle to launch three Engineered Systems service offerings and received certification by SAP Hana for two retail applications.

“In 3Q14, two key modules of Capgemini’s Extreme Applications for retail solution were certified to run on SAP's Hana platform, which allows retailers to identify best offers for a specific customer through analytics,” Bakalova said.

It also launched an Integrated Procurement and All-Channel Experience (inPACE) system for NetSuite in the retail industry and a "Virtual Company" cloud-based BPO system with NetSuite to differentiate traditional BPO offerings.

Big gains and losses

“The listed partnerships allow Capgemini to provide a vendor-agnostic value proposition to clients and differentiate core offerings such as BPO,” Bakalova said.

In Q3, the French outsourcing company signed services contracts with major enterprises including Dutch dairy company FrieslandCampina and Australia’s Wesfarmers.

But one of Capgemini’s big UK public sector contracts – with HM Revenue & Customs (HMRC) – will expire in June 2017.

HMRC expects to save more than £200m a year by abandoning its Aspire IT outsourcing contract when it expires in June 2017. Aspire is one of the biggest IT outsourcing deals ever signed by the UK government, costing on average £813m per year over the past 10 years. By the time the deal ends in June 2017, prime contractor Capgemini will have pocketed £10.4bn.

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