Capgemini buoyed by Kanbay acquisition

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Capgemini, Europe’s largest IT consultancy, gave an upbeat outlook for 2007, buoyed by its recent acquisition of an Indian offshore operation that its chief executive called an example of “happy globalisation”.

The French IT services company on Thursday reported a doubling of net income to €293m last year, marking a return from the wilderness after the ill-timed purchase of Ernst &Young’s consulting arm in 2000 led to three years of straight losses.

Shares in Capgemini rose 5.6 per cent to €53.60, a five-year high.

Capgemini aims to increase revenues by a “cautious” 8 per cent in 2007 – above forecasts – from €7.7bn in 2006 and to raise its operating margin to 8.5 per cent in 2008.

Margins rose last year in all countries apart from France, where Capgemini suffers from a long-standing loss-making contract with the electrical group Schneider. But Paul Hermelin, chief executive, said the struggle could eventually pay off in the form of new business, adding: “There’s never a contract where you’re totally stuck.”

Analysts said the outlook implied a stronger contribution than expected from the $1.25bn purchase of US-listed IT group Kanbay, which increases Capgemini’s low-cost presence in India and adds new US clients in financial services.

Mr Hermelin said the new group was likely to retain most customers, and that Kanbay would focus on its existing priorities in the early stages of integration. “It’s happy globalisation,” he said.

In the longer term Mr Hermelin said he wants to transfer more higher-value work to the Indian centres, aiming to triple the Indian workforce in four years while raising Capgemini’s onshore headcount by an average of 2 to 3 per cent a year.

A former advisor to the socialist politician Dominique Strauss-Kahn, Mr Hermelin has often had to defend his adoption of an offshore business model criticised by the French left and targeted as a catalyst for higher corporate taxes in the proposals put forward by presidential candidate Ségolène Royal.

He criticised costly election promises made by both leading candidates, saying on Thursday: “I don’t understand why every five years we have a democratic ceremony of gift distribution.”

He also questioned the flagship socialist policy of the 35-hour working week, saying it had sparked demands for longer holidays rather than a shorter week, and that working less was “no solution” to Asian competition.

“I’m sure it’s good for tourism but it doesn’t put labour at the centre of the society and the economy,” he said.

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