EuroBusiness Media (EBM) Capgemini, a global leader in IT services and management consulting, just reported earnings for the first half, Paul Hermelin welcome. You are the CEO of Capgemini, what are your comments on the Group's overall performance in the first-half, and furthermore, looking ahead, are you on track to meet your guidance, which is 9% organic growth and 7% operating margin this year, 8.5% margin next year, reaching 10% by 2009/2010? So, are you still on track, and do you confirm that this guidance holds in light of the first-half figures?
Paul Hermelin (PH): First let's be clear, we are on track, that's clear. The first thing I want to say is that the market on which we operate is truly good, it's a good market, strong demand, soft price evolutions because of the new competition pressure, notably from emerging countries and India of course, but a good market. In this good market I think Capgemini's performed pretty well. We are growing in H1 by 11.5%. That's probably the best western performance.
Including Kanbay the growth even amounts to 16%, so it's a good half year and the
margin shows a 1.3% or 130 basis point improvement, which puts us on track to deliver the guidance of which you just reminded us. So we will deliver the 9% growth for the full year, we will deliver the 7% operating margin that we guided on, I think we will deliver the further progress, but there is a lot to do, because this market is truly changing.
EBM: How is your I-cubed program - standing for innovation, intimacy and industrialisation -coming along? Is it starting to deliver some tangible results? How are you progressing in terms of growing your staff in India? Are you still on target to reach 40.000 employees in India by 2010?
PH: The first stunning element is that over 12 months we tripled our offshore headcount. One year ago we had nearly 10% of our staff in offshore locations and we are now close to 22% of the total, so that's a good sign. People have understood what's going on and how to leverage offshore, but we want to move further. So I would say that the first phase of that I-cubed transformation program is now completed, which is what I would call generating ideas, capturing new operating principles, drawing the lessons of a few pilots. So now we move to the roll-out of some of the I-cubed priorities, and among these priorities frankly industrialisation will come first. So it will probably mobilise more than 50% of our energy. And we have now identified a new advanced operating model that will put offshore truly in a seamless manner, to integrate offshore deeper, which will be tomorrow a reality for some advanced markets like the US, like the United Kingdom, probably most of our outsourcing business. We will push forward what we do everywhere but there will be some pilots. So we are ready for a live roll-out of some I-cubed priorities and, by the way, it will be quite exciting to build the 2008 plan, leveraging the I-cubed levers - of course we will be prudent when guiding the market next February - but it will be exciting to build a plan that will not just be a kind of extrapolation of 2007, but something materially different. And that that's how we will hopefully deliver and beat the 8.5% margin that we have already committed on.
EBM: What is your update on the integration of Kanbay? Is this recent acquisition already starting to deliver the first synergies, or will we have to wait until the second-half of the year?
PH: The first thing I'd like to say is the Kanbay growth in H1 was good. Of course, as of April we transformed operations, so it's a little bit artificial to track Kanbay, but if you try to follow what used to be Kanbay, the growth in H1 is above 19% - so there is a good momentum there. But I want to say that the first weeks were weeks of internal focus, organisation, new principles, just being exposed to the Capgemini new reporting, so that probably slowed down a little bit the market energy. I have seen very strong mobilisation as of April and we started to record new growth and better market activities as of June. July is confirming that. So, if the integration slowed down a little bit the pace for a quarter, that's pretty normal. Frankly I could not expect something better. What I want to say in terms of synergies - you refer to synergies - we have started to win some deals that Kanbay would not have signed alone and that would have been out of reach for Capgemini. I think of a very large European insurance company, where frankly we could displace some of the Indian large pure players. So these are things that were totally out of reach for Capgemini. But there is a lot to do. Attrition is a little bit worrying, notably in India, because they used to work for a very niche player and they feel now part of a powerful but more of a generalist, so that change a little bit their feeling about the operation. So we spend a lot of time on that and we will monitor the situation quite closely.
EBM: What is your situation update on the US market, where you said you intend to become a leader, but where there have also recently been some concerns about the dynamic of the US market as a whole?
PH: I was there two weeks ago. And frankly the second quarter bookings were OK but the pipeline is growing massively. Our pipeline of opportunities, year on year, has grown probably more than 60% so it's a good market, it's a solid market. People are a little more prudent, because of the real estate new trends but there are a lot of investments. What is clear is that there is a price pressure, because of the very strong Indian competition that is there quite installed in most of our accounts, I think prices are going down there in the US, so we must leverage even further the Indian factor compared to Europe. Today, in the project business, for 100 people that work, we have 60 people working in the US for 40 people working from in India, and we will reverse that proportion, we are moving towards a 40/60 proportion. So we need to do a lot of things, but I think the market is good.
EBM: Finally, there have been persistent rumours about Infosys wanting to acquire Capgemini, or inversely about Capgemini intending to sell part of its consulting business to Infosys. Would you care to restate your position today concerning these recurring rumours? Furthermore, you've said that you intend to make some niche bolt-on acquisitions. Can you provide us with more details today about your acquisition strategy?
PH: A few remarks. The first point is the very idea that we would sell any part of the group is totally stupid and I immediately reacted by saying to all the Kanbay, legacy Kanbay employees, my comments saying that is totally irrelevant. So this is not for sale and we do not contemplate selling any part of significance of the group. There are always some very tiny portfolio adjustments, but nothing strategic at all. Second point on Infosys themselves, I don't think there is any ground for that. So these are market rumours that help some people probably to make a little money. I don't believe today any Indian company is able to integrate culturally a very large European player. We will see them making some very targeted, tiny acquisitions that will improve their onshore beach heads, but that do not trigger big cultural challenges for the integration. I don't think that will come in 2007 - it will probably come later on but not today. And my only question is that I'd like this rumour - it's a kind of tribute to our situation where we have become again quite attractive a player, and possibly an attractive and not expensive enough target - but I don't like these rumours when we are in a shortlist against some of them, and I don't want people to destabilise us as just a commercial trick to win what should remain a fair competition. Now, regarding ourselves, we are making very small targeted acquisitions, we have quite silently acquired a little company in the US to reinforce our Sogeti business there. The integration is going pretty smoothly. The main point is today, the big task is to deliver the successful integration of Kanbay. Until this is completed you will not see us doing any other acquisition of importance.
EBM: Paul Hermelin, CEO of Capgemini, thank you very much indeed.
