Capgemini has announced its Q4 2017 and full-year 2017 results:

Q4 2017 revenues were €3,334m, up 2.2% y/y, up 3.7% y/y at CC, and up 5.6% y/y at CC/CS

• North America and Rest of Europe had solid performance, with respective y/y CC growth of 12.3% (thanks to the McDonald’s contract) and 11.3%
• Consulting services was up 19.1% at CC, notably thanks to acquisitions. Application Services and Sogeti were up respectively by 8.9% and 7.8%

Full-year 2017:

• Revenues were €12,792m, up 2.0%, up 4.0% at CC, and up 3.6% at CC/CS
  - This includes a NelsonHall estimated 110 bps impact from the insourcing of the Aspire contract with HMRC
• Adjusted EBIT margin was €1,493m, a margin of 11.7%, up 20 bps
  - The margin was the low-end of the guidance, impacted by pricing pressure in the U.S. and exchanges (the fluctuation of INR)
• EBIT was €1,183m, a margin of 9.2%, unchanged y/y
• Net debt was €1,209m (2016: €1,413m).

Digital and Cloud revenues were up 24% to €4.9bn, representing 38% of 2017 revenues, and up 40% in Q4 2017. This compares with 30% of revenues in 2016, up 29%.

2017 revenue breakdown (and revenue growth on an actual and CC basis) by geography was:

• North America: €3,923m (+3.2%, +5.0%)
  - Manufacturing, CPG and retail, and BFSI were up. EUC was back to sequential growth since Q3 2017
• U.K. Ireland: €1,681m (-15.6%, -9.6%)
  - The HMRC contract continued its insourcing process. Meanwhile, since Q3 2017, Capgemini saw softness in the retail sector due to Brexit
  - Private sector now accounts 63% of revenues in the U.K., and had slight growth
• France: €2,700m (+5.2%, +5.2%)
  - Growth came from Application Services, and Consulting Services, around cloud and digital
  - Growth in Financial Services, retail, and CPG was above 10%
• Rest of Europe: €3,478m (+8.2%, +8.6%), thanks to demand for digital and fast adoption of offshoring (+20%)
  - Germany, Nordics, and Italy were up by ~10%
• APAC and LatAm: €1,010m (+4.7%, +7.9%)
  - Brazil was stable in Q4, while Mexico had solid growth. APAC continued to have above 10% growth thanks to Financial Services, CPG , and energy.

2017 revenue breakdown (and revenue growth on an actual and CC basis) by service line was:

• Consulting Services: €584m (+15.4%, +14.0%)
  - Continental Europe continued to drive growth thanks to manufacturing, Financial Services, CPG and retail
• Sogeti: €1,927m (+2.9%, +4.7%)
  - Growth was driven by France and Nordics. Energy & utilities was up by ~10%
• Application Services: €7,940m (+5.1%, +6.6%)
  - France, Germany, Italy, Nordics, an APAC drove growth thanks to Digital and Cloud, and manufacturing, CPG and retail
• Other Managed Services: €2,341m (-10.1%, -6.4%)
  HMRC in the U.K. and overall infrastructure services in the U.S. were under pressure. Business Services were stable.

2017 revenue share (and NH estimated revenue, and CC revenue growth) by vertical was:

• Financial services: 27% (€3,454m, +6.4%)
• Manufacturing, automotive, and life science: 21% (€2,686m, +10.4%)
• Consumer products, retail, distribution, and transportation: 16% (€2,047m, +7.8%)
• Public sector: 14% (€ 1,791m, -7.9%)
• Energy, utilities, and chemicals: 11% (€1,407m, +2.6%)
• Telecom, media, and entertainment: 7% (€895m, -7.9%)
• Other: 4% (€512m).

2017 adjusted operating margin (and in 2016) by service line was:

• CS: 11.2% (10.7%)
• Sogeti: 13.6% (12.8%)
• AS: 12.9% (12.7%)
• OMS: 9.2% (10.0%). OMS was impacted by revenue decline in the HMRC account in the U.K.

2017 adjusted operating margin (and in 2016) by geography was:

• North America: 13.5% (15.4%)
  - Profitability was impacted by investment in the service portfolio, price pressure on the renewal of large contracts, and restructuring costs (i.e. restructuring of its datacenter business, to prepare growth in public cloud)
• U.K./Ireland: 15.1% (14.6%)
  - The margin improved as a result of the decline in the IT infrastructure business with HMRC
• France: 9.9% (9.1%)
• Rest of Europe: 12.0% (10.5%)
  - Offshoring and digital & cloud led the margin expansion
• APAC and LatAm: 9.8% (6.6%).

2017 bookings were up 0.6% at CC, and book to bill was 1.01.

Headcount at end of 2017 was 199,700, up 3.4%. This includes 114,000 personnel in nearshore and offshore countries, up 5.0%. Onshore headcount was up by 1.2k FTEs, while offshore was up by 5.4k personnel. Offshore leverage was 57%, up from 56% in 2016.

Attrition was 18.9% up by 60 bps y/y.

Capgemini spent in 2017 €238m on acquisitions.

Guidance for 2018 is

• Revenue growth at CC in the range of 6% to 7%, including 1.6% from the planned acquisition of LiquidHub (2017: +4.0%)
  - H1 will continue to be impacted by the HMRC insourcing activity. NelsonHall estimates the impact to 100 bps in H1 2018
  - The impact of currency fluctuations will be ~350 bps on revenue growth
• An adjusted operating margin in the range of 12.0%-12.2% (2017: 11.7%)
  - This includes a 20 bps improvement from the impact of IFRS 15 
• A FCF above €1bn (2017: €1,080m, above the guidance of €950m)

Capgemini intends to spend  €0.4bn on the planned acquisition of LiquidHub. The company wants to spend half of its FCF on M&As. This leaves for 2018 €0.1bn in further acquisitions. With LiquidHub, Capgemini is pursuing its strategy of expanding skils to "creative" capabilities, something it had initiated with Fahrenheit (digital consulting) and Idean (product design). LiquidHub brings new capabilities in direct marketing and advertising. In Europe, Capgemini partners with Publicis.

Capgemini has indicated it intends to achieve its mid-term objective of an adjusted operating margin in the range of 12.5%-13.0% in 2020, and of 5% to 7% CC/CS by 2020.