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Capgemini’s Digital Transformation, Cloud Revenues Surge

Paul Hermelin

Paul Hermelin

Capgemini is showing strong momentum across its four core businesses — including consulting services, technology & engineering services, applications services and managed services. We wonder: Are growing relationships with Amazon Web Services, CloudFoundry, WorkDay and other cloud companies gaining momentum? We suspect the answer is yes.

Indeed, overall revenues at Capgemini rose 14.4 percent at constant exchange rates during the first half of 2016, according to an earnings statement today. The IT consulting firm says its digital and cloud revenues surged 32 percent during the period.

“Having started the year with a good momentum, the group has delivered an excellent first half,” says Capgemini CEO Paul Hermelin. “Our revenue is up 14.4% at constant exchange rates and our operating margin increased sharply (+1.5 points) to 10.2% of revenues with margin improvement in each of the Group’s regions.

Goodbye Client-Server? No Problem

Capgemini’s performance reinforces the fact that big IT consulting firms can successfully pivot as big on-premises IT projects somewhat consolidate amid the shift to cloud workloads. Toward that end:

Capgemini’s financial results suggest digital business transformation remains a hot opportunity for IT service providers. A closer look at each of Capgemini’s core business efforts reinforces those points. For instance:

  • Consulting Services: Revenue rose 8.1 percent at constant exchange rates with strong growth in the UK.
  • Technology & Engineering Services: Revenue rose 13.1% at constant exchange rates in the first six months. In addition to the IGATE acquisition, growth was driven by North America and Rest of Europe regions.
  • Application Services: Revenue surged 17.2 percent at constant exchange rates for the first-half. Beyond the contribution of IGATE, growth was mainly driven by an acceleration in Europe.
  • Other Managed Services:  Revenue surged 9.3%  at constant exchange rates thanks to the impact of IGATE and despite the anticipated marked drop in activity in the United Kingdom.

Regional IT Services Spending Trends

In today’s earnings statement, Capgemini also revealed some regional trends. They included:

  • North America (30% of Group revenues) reported, including the integration of IGATE, revenue growth at constant exchange rates of 36.2% year-on-year, driven by the financial services, consumer goods and retail and manufacturing sectors. As expected, there was a major slowdown in the Energy & Utilities sector — where MSPs like RigNet are now experiencing layoffs.
  • United Kingdom and Ireland (17% of Group revenues) reported revenue growth of 8.6% at constant exchange rates. Local momentum was boosted by contract wins in the private sector which now represents more than half of revenues and reported double-digit organic growth, while the public sector was down as anticipated.
  • France (20% of Group revenues) reported a 4.8% increase in revenues, fueled by strong traction in application services. The financial services and consumer goods and retail sectors were the most dynamic during the period.
  • Rest of Europe region (which now includes Benelux and represents 26% of Group revenues) reported 6.9% growth in revenues at constant exchange rates, with all geographies and sectors contributing to this result.
  • Asia-Pacific and Latin America (7% of Group revenues) reported growth of 10.3% at constant exchange rates. Growth remains very dynamic in Asia-Pacific, driven by the financial services and consumer goods and retail sectors. The economic environment remains weak in Brazil but the negative impact on Group growth is reducing.

Overall, Capgemini sounds bullish about its business. Indeed, the company today raised operating margin guidance for 2016.

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