Capgemini chief executive Paul Hermelin said the company now expects operating margin for 2007 to come in above the previously stated objective of 7%, adding that margins in the second half of the year would be close to 8.5%.
The results served to reassure investors who had raised concerns that the ongoing credit market crisis could adversely affect Capgemini’s performance. In September, the company was forced to reiterate full-year guidance of 9% revenue growth and 7% operating margin while at the same time admitting that the collapse of the sub-prime market had hit its financial services unit.
Capgemini’s presence in the financial services market has increased over the last 12 months, largely due to the acquisition of Kanbay at the beginning of the year. The company now derives just under 17% of its total revenue from the industry and Hermelin stressed that this was less than many of its major rivals.
The improvement in Capgemini’s margins is in part due to the growth of the company’s global sourcing operation. Capgemini now has 19,000 staff in offshore locations, including India, China, Poland, and Morocco, equivalent to 23% of total headcount. The ramp-up has been most apparent in India, where Capgemini’s staffing level has more than doubled over the last year to about 16,300. The purchase of Kanbay added about 5,000 employees to Capgemini’s headcount in the region.
Capgemini’s revenue growth in the third quarter was largely driven by the company’s technology services division, which provides systems integration services around CRM and supply chain management technology. The operation grew sales by 9.2% over the same period of the previous year, compared to an increase of only 1% in outsourcing services sales. The company’s consulting business grew revenue by 8%.
Capgemini also revealed that it has extended the controversial Aspire deal with HM Revenue and Customs in the UK for a further three years, taking the end date to 2017. The company won the initial 10-year deal in January 2004, but costs have spiraled since then, and Capgemini has come under scrutiny over the level of profit it has derived from the project.
