EuroBusiness Media (EBM) : What are your comments on Capgemini's full-year results ? Have you kept your promise -- from one year ago -- to stop the downward spiral and to increase margins in the second-half of 2004 ?
Paul Hermelin (PH) : Yes Adrian, we did. The first thing, as you stressed, that was so important, was that we had to stop the decline of the top line, and we recovered. On the full year basis, we grew by 9%. At constant rate and constant perimiter, the growth is a little less, less than 3%. But in the second half, we grew by more than 20% (published figure), and at constant rate and constant perimiter by more than 13%. So we are definitely growing, and the revenue recorded in the last quarter put us back where we were 3 years ago, in 2001. So we have erased 3 years of decline. Regarding margin now: we delivered what we said we would, even a little better. We announced a minimum 2% operating margin, after the negative operating margin in H1, and we delivered 2.35% - so nearly 2.4% - which is a little better. Nothing to be that proud of, but what I see behind that is truly European operations are under crontrol, growing again, and delivering solid profit, which is promising for 2005. And I see a stable situation in the US, where we are still in the red, but now we have cleaned all the problem jobs, and we are stable.
EBM : You also promised to rebalance the business portfolio. Has Capgemini now reached its definitive configuration in terms of business portfolio, or do you plan further evolutions ?
PH : Here too it's pretty satisfactory because in 3 years we grew the outsourcing, i.e. the recurring revenue, from 20 to 38%. So the rebalancing is now complete. And with about 40% of annuity revenue, we are improving significantly the visibility of the group. Beside that, I would like to stress 2 significant achievements. One is definitely a breakthrough in transformation outsourcing: we signed some truly superb deals, and thanks to these wins, we recorded for the second recurring year more than €10bn of bookings, our backlog has more than doubled in 18 months, with a €14bn backlog, and the coverage is pretty good now. In addition, I would like to stress the very successful merger between Sogeti and Transiciel, in our local professional services division, where the merger was extremely well executed, with good growth and a good margin.
EBM : What is your overall analysis of the Group's performance today, by geographical zone ?
PH : My impression is that today in Europe we are not only growing thanks to the large outsourcing deals. The project business is now growing - consulting as well as system integration and local professional services. All our project divisions are growing - not at the same pace in all countries - but Europe is growing. In the US, we are now positive again thanks to a major positioning in outsourcing, and the project business is stable. For the first year in a long time, we have signed new deals, so the book-to-bill ration is above 1, I think 1.1, which will fuel a stabilisation of the project business.
EBM : What are Capgemini's plans for North America ? How do you plan to turn the situation around ?
PH : As I stressed, the situation in the US is stable, which is new. We cleaned a lot of bad projects, but the profitability is not there, which is not acceptable. So what I have been doing is this : first thing, as of January 1st, I put all the outsourcing business under the authority of a global outsourcing leader, Paul Spence, who will manage the US and European outsourcing business. He is American, based in London. Secondly, I launched on January 14th a transformation program named Booster, that dwelled on all the problems: cost issues, geographical focus, sectorial focus - my view is that we are a little thin-spread over the market - so it is a plan to right-size and refocus our US operations. The plan is pretty advanced, I expect it to be finalised mid-March. I personnaly spent 5 weeks out of the last 9 in the US driving that effort, so the plan will be finalised in the coming days. What I can say is that the plan is to be breakeven in H2 and to reach peer performance in 2006. To drive the plan, I have asked Pierre Danon, the new Chief Operating Officer, who will join the group next Tuesday, to become the executive chairman of our North American operations. Of course, I will go there to coach and help him. I prepared this plan with him, and he has accepted to take full responsability for the implementation of the plan, and I am very confident that we will see rapid improvement.
EBM : How will you continue to retain and attract the "best talents", bearing in mind relative market conditions today ?
PH: The first point is that the market is warmer, so the attrition has increased a little bit, that is not a surprise. But if we want to keep people, we must invest in them, and we must recover some of the basics that had been lost a little during the recession. But the reason for people to stay with the group will be to work on exciting projects. And what we have signed is a breakthrough in transformation and outsourcing. Some major wins in the new hottest segments, in system integration, SAP Netweaver or business intelligence. These are the main arguments that will attract new talents and retain the ones that we have.
EBM : What is your guidance and outlook for 2005, and what degree of visibility do you have for the future ?
PH : I think we have learned that we must under-promise and over-deliver. But what I can say is that we saw significant operational improvements in the second half in Europe. What I now hear, what is reported about the start of the year, confirms the trend. So I expect a new improvement in Europe, so that Europe will progressively reach the peer margin level. In addition, I said we would restructure the US in the first half and be back at breakeven, or better, in the second half. So this being said, the group will grow again. I foresee a growth of about 10% for the full year, and the margin will see a new step of improvement compared to the second half of 2004.
EBM : Paul Hermelin, CEO of Capgemini, thank you very much.
PH : Thank you.