Capgemini reaps benefits of Satyam woe

By Philip Stafford and Tim Bradshaw in London
Published: February 13 2009 02:00 Last updated: February 13 2009 02:00

Capgemini, the French IT services company, said it was benefiting from the accounting scandal at Satyam, its Indian outsourcing rival.
Satyam is at the centre of a $1bn fraud inquiry after its chief executive admitted to accounting manipulation.

"In the Satyam follow-up, we are seen as the safe way to go to India," said Paul Hermelin, Capgemini's chief executive. "The safe bet - if you want Indian costs and customer intimacy, plus transparent accounting and a very solid balance sheet - is us."
Capgemini is looking to increasingly use offshore staff to preserve margins as the outlook for IT services worsens.
The business showed a rapid deterioration in the fourth quarter and the company said it had little visibility beyond the first half, which sent shares down €2.1 to €26.2 in Paris.
There has been a further negative shift in market conditions, "because customers in January are in 'wait-and-see' mode", Mr Hermelin said.
The group forecast "modest revenue decline" but said operating margins should remain above 6.5 per cent in the first half.

Rakesh Balasubramanian, analyst at Credit Suisse, said Capgemini's forecasts were realistic. "We forecast revenue decline of 3 per cent year-on-year in the first half and an operating margin of 6 per cent," he said.
Like many of Europe's large IT systems integrators, Capgemini saw growth in the fourth quarter in its public sector, energy and utilities businesses.
However, Mr Hermelin said spending on short-term discretionary projects remained frozen, while large projects were increasingly being broken down into stages. Capgemini was redeploying people within the business and aiming to reduce its reliance on contractors by 30 per cent.

Revenues for the year to December 31 were flat at €8.7bn ($11.2bn), while operating profit rose from €440m to €451m. Operating margins rose to 8.5 per cent from 7.4 per cent a year ago. It also agreed to pay a dividend of €1 per share.
Capgemini expects to announce that it has won a "sizeable deal" with a previous Satyam customer.