Revenues up, margins down! That was the theme set by Atos UK yesterday (see AtoS H1: UK outperforms other geographies) and echoed today by Capgemini, which reported UK revenues in H1 up 5% to €987m, but operating margins down 230bps to 6.1%. The UK was Capgemini's slowest growth major geography bar Benelux. Atos saw UK revenues grow by 3% to €458m (best geo growth), with margins trimming 70bps to 7.5%.
At the group headline level, Capgemini boosted revenues by 13% to €4.7b, including a €200m contribution from its September 2010 acquisition of Brazilian IT services leader CPM Braxis (see Brazil: Opportunity for some!). Like-for-like growth at constant exchange rates (CER) was 7.4%, in stark contrast to Atos’ 1% decline. However, Atos did better on the profit line, reporting a 6.5% operating margin (up nearly 3 points yoy), compared to 5.1% at Capgemini (up 40bps yoy).
Capgemini CEO, Paul Hermelin, has set a ‘long term’ objective to gain market share and exceed 10% (adjusted) operating margin. There are challenges on both fronts here, rather well illustrated in one of his own charts showing H1 growth (CER) for his major competitors. It is instructive to note the players he sees as growing faster than Capgemini: TCS, Infosys, Wipro, Cognizant, HCL – and Accenture. Of these, Accenture of course has the lowest operating margin, around 13%, which suggests that Capgemini is either going to have to do a lot more stuff higher up the IT services value chain, or an awful lot more offshore, if it is to reach even a 10% margin. In that latter respect, Capgemini continues to beef up up its offshore ‘leverage’, which now stands at 38% of billable headcount, vs 36% a year prior.
Anyway, let’s see if the UK growth/margin ‘theme’ is also echoed by the other European majors, Steria (reporting later today) and Logica (next week).