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Capgemini is the latest technology services group to shrug off fears that the global economic downturn will depress demand for IT services and consulting. Posting what analysts said were “fairly respectable” first half-year results, its chief executive Paul Hermelin said it had “recorded” no sign of an IT slowdown. Its orders for the six months to June rose 3.9% on last year, at constant exchange rates, to €4,327m (£3, 450m), and operating profit leapt 25% to €288m. The numbers prove that “against the fears” the IT services market “fared pretty well,” but in the latest fiscally challenging quarter, trading was just “quite satisfactory," Hermelin said. In part, his more reserved assessment reflected the appreciation of the euro: at current exchange rates, Capgemini’s total revenues for the first half-year fell by 0.5%, despite its headline claim they grew by 5.3%. Nowhere at the group was the revenue dip more unwelcome than at its UK IT services arm, which took a separate knock from HMRC shifting from ‘investment’ to the ‘run’ phase of its IT. Yet the lower contribution from HMRC was offset by new bookings for Capgemini’s outsourcing and technology divisions, including the UK’s, such as a £250m deal at the Learning and Skills Council. Alongside more emphasis on offshoring work to low-cost locations, and an IT consolidation that yields annual savings of €100m, this greater public sector presence helped “steady” the group’s results. Analysts at Ovum also hinted Hermelin was right to say Capgemini’s pending purchase of Getronics’ applications business would hold his group in good stead, if business conditions worsen. His focus on “cost control” – by offshoring work to India and Eastern Europe while aligning onshore staff to complement these teams, will continue in the future to safeguard profitability. Largely as a result, and presuming business conditions remain “OK”, Capgemini predicted revenues to grow by up to 5% for 2008, with double-digit margin growth possible by 2010, (up from 8.5% in 2008, versus 7.4% in 2007 and 7.6% now). “We are preparing for possible adverse [economic] conditions as we do not know what will happen in 2009/10,” Hermelin said, before admitting Capgemini would be impacted if conditions worsen. “[But] so far we have not actually recorded any sign of a slowdown. Customer demand has not softened so far. Of course [we are] prepared for a slowdown but [let’s] not create it”. If belt-tightening remains the norm for businesses, he predicted customers would not stop investing in IT, rather “they will ask for more return on [their] investment; they will ask more for less.” Ovum analyst John O’Brien reflected that, like other A-list IT services players to recently update the market, Capgemini is “not [yet] suffering” from continuing signs of weakness in the global economy. Other than a ‘flight to quality’, two major factors explain this reported buoyancy in IT services during the first half of 2008, said the Management Consultancies Association, which represents 70% of UK consulting firms. “The first half of the year is often the best half for consulting firms,” cautioned Fiona Czerniawska, director of the MCA’s think-tank. “The MCA's own half-year survey [of 2007] reported growth of around 20%, but the overall growth for the year was only 10%, suggesting that the second half of the year was pretty flat. “Some of this is caused by budgets cycles, but the second half of the year includes the summer and Christmas, so firms would expect there to be more activity in the first half.” The other explanation, also offered by the report’s findings, centres on the inert timescales of the IT services projects that major clients must meet because of corporate governance. “There actually appears to be pent-up demand for greater expenditure [in information technology] because so much money has gone, particularly in financial services, on compliance and regulatory-related work,” Ms Czerniawska said. “This contrasts against the previous downturn in 2002 when there was a significant backlash against IT from the dotcom bubble and Y2K. This suggests that IT expenditure will be comparatively resilient if there is a [n industry] downturn this time around”. Hermelin agreed. Pointing to local IT services overseen by global delivery, and the associated productivity gains and industrialisation, factors not confined to Capgemini, he said any ensuing slowdown in the IT industry “will not look like the last one.” Aug 6, 2008 Email this article Printer friendly page Previous Page
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