Capgemini Sees Soaring Profit As Financial Services Firms Turn To Digital Transformation Consulting

An increased focus on digital transformation consulting and projects in the financial services, retail and telecom spaces drove monster revenue and profit growth for Capgemini.

"Many of these wins have been in our focus areas of digital and cloud," Srikanth Iyengar, Capgemini's group head of sales, said during an earnings call Wednesday. "We won against a wide range of competition, including other leading global system integrators and also Indian pure players."

The Paris-based solution provider, No. 6 on the 2016 CRN Solution Provider 500, saw global revenue climb 11.6 percent in the first half of 2016, from $6.17 billion to $6.89 billion. North America is leading the way, due to last year's $4 billion purchase of iGate and strength around financial services, manufacturing and consumer products, with sales growing 35.1 percent to $2.08 billion.

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Capgemini's net profit for the period ended June 30 rose by 26 percent from $319.4 million in the first half of last year to $403.1 million in the first half of this year.

The company's earnings were announced before the Euronext stock exchange opened Wednesday. Investors had a lukewarm response to the news, with Capgemini's stock falling 0.8 percent in trading Wednesday, to $91 per share.

Capgemini's application services practices grew by 15.2 percent in the first half of 2016 to $4.1 billion, due to the strength of the company's digital portfolio, particularly in Europe.

Capgemini's digital and cloud revenue grew by 32 percent in the first half of the year, where consulting around digital applications in verticals such as customer experience and manufacturing has driven massive adoption in Germany, France and Northern Europe, CFO Aiman Ezzat said during the earnings call.

Digital transformation initiatives in the United Kingdom also drove 9.1 percent growth in Capgemini's consulting services practice, with revenue rising to $292.9 million. Sixty percent of Capgemini's consulting activities are now linked to digital transformation efforts for clients, according to Capgemini CEO Paul Hermelin.

Although the U.S. has enjoyed strong cloud migration and digital adoption in the financial services space, Ezzat said a lack of digital marketing has resulted in less momentum about digital initiatives in North America and a decision to focus more on the business-to-business – rather than the business-to-consumer – space.

Capgemini is therefore looking at acquisitions to bridge some gaps around consumer-oriented digital initiatives in North America, Hermelin said during the earnings call.

The company's technology and engineering services category saw sales grow 13.2 percent to $1.04 billion due to the iGate acquisition as well as strength in the North America and Rest of Europe regions. Other managed services saw a more modest 2 percent growth, with sales rising to $1.46 billion, as an unexpected drop in activities in the United Kingdom tempered growth.

From a sector perspective, financial services led the way, with more than 30 percent year-over-year growth due to the iGate acquisition. Meanwhile, consumer products, retail distribution, telecom and media all saw double-digit bookings growth.

Conversely, Capgemini's energy and utilities space experienced some softness in the first half of the year, with North American sales declining by nearly 40 percent in the second quarter. Hermelin said Capgemini expects energy and utilities sales to continue declining in the third quarter, particularly in North America.

Outside North America, the Rest of Europe region led the way as sales climbed 6.3 percent to $1.75 billion. Germany and the Nordic region contributed double-digit sales growth, while Iberia and Benelux (Belgium, the Netherlands and Luxembourg) also delivered positive results.

France saw sales grow 4.8 percent to $1.4 billion thanks to strong traction around application services, financial services, consumer products, retail and distribution. The U.K. and Ireland saw more modest 2.1 percent growth, with sales reaching $1.15 billion, as contract wins in the private sector were offset by declining public sector sales.

The Asia-Pacific and Latin American regions saw sales decline 3.7 percent to $501.1 million, al though the regions actually delivered 10.3 percent growth after excluding the effects of foreign currency exchange rates.

The financial services, consumer products and distribution sectors drove growth in Asia-Pacific, while weakness in Brazil continues to hamper Latin America.