July 28, 2011 2:40 pm

Capgemini to halt acquisition spree

Paul Hermelin, chief executive of Capgemini, said Europe’s largest IT services company was putting plans for bigger acquisitions on hold in order to calm fears about the company’s dwindling cash reserves.

Capgemini Q2 results
Sales Net profit Earnings per share Dividend
€476m €127m €0.82% -
↑12.9% ↑25% ↑32% -

Capgemini has spent €840m ($1.2bn) over the past two years on 17 acquisitions which have helped it expand into emerging markets like Brazil. However, Mr Hermelin said the company was now looking to conserve cash.

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“We have to calm down the apprehensions about our cash position before we do anything sizeable,” he told the Financial Times. “We will consolidate the acquisitions we have made.”

Shares in Capgemini fell more than 7 per cent on Thursday after the company revealed it had €169m in cash at the end of June. At the end of the year, it expects the net cash position to be around €250m, around half the level expected by the market.

Capgemini shares were down €2.7 at €36.05 in afternoon trade.

“Our cash position is weaker than many investors had expected. We should have guided the market better,” Mr Hermelin said.

Revenues at Capgemini rose 12.9 per cent to €4.76bn in the first half of the year, while net profits rose nearly 26 per cent to €127m. First half operating margin, a key indicator for the company, rose 18 per cent to €289m, in line with market expectations. Earnings per share rose to €0.82, from €0.62 in the first half of last year.

The French company, which employs more than 114,000 people worldwide, confirmed 2011 revenues would grow 9-10 per cent and that it would add 0.5 to 1.0 percentage points to its annual operating margin.

However, Mr Hermelin said that pricing pressure was fierce and that macroeconomic uncertainties were making customers “nervous”.

The results are in contrast to Atos Origin, a French rival IT services business, which on Wednesday raised its annual operating margin target.

The US, a region in which Capgemini has sometimes struggled, saw 12 per cent sales growth and doubled profits as Capgemini won business in the insurance sector. Mr Hermelin said that recognition of the Capgemini brand was increasing in the country.

Profits also increased by 60 per cent in France, but the UK and Netherlands, where governments have cut back on public sector IT projects, continued to see profit margins decline.

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