Redundancies loom while UK profits halve for Capgemini

As an impending “rationalisation programme” sees Capgemini make an unspecified number of its UK staff redundant, Capgemini UK has revealed that its profits nearly halved in 2017. The consulting and IT services group blamed the fall on currency losses linked to Brexit uncertainty weakening the pound, as well as a fall in public sector demand.

Building on a 50-year heritage of technology and IT industry-specific expertise, Capgemini’s staff of 200,000 team-members in over 40 countries works to enable organisations to realise their business ambitions through an array of services from strategy to operations. The consultancy reported global revenues of €12.5 billion in 2016, and spent 2017 looking to build on that momentum. Along with the broader consulting industry, this saw Capgemini making a concerted effort to muscle its way into the design and advertising space via a campaign of acquisitions.

One of the subsequent deals in this vein saw the IT consultancy buy digital firm Lyons Consulting Group for an undisclosed fee, with the aim of drawing new business via Capgemini’s growing digital design capabilities. Capgemini’s targeted acquisition strategy did seem to pay dividends in terms of new business, with the firm winning two contracts from fast food giant McDonalds – one of which came from major competitor ATOS – along with a contract to develop an RPA Centre of Excellence for the UK Government.

In spite of this, Capgemini’s results for 2017 seem to have underwhelmed the firm’s leadership, with the consultancy primarily citing Brexit as a reason for its decline in profits. Overall, the French-origin firm’s UK profits fell by 48% last year, hitting £62 million. This was Capgemini’s weakest annual performance in five years, according to filings at Companies House, and Capgemini cited currency movements following the UK’s vote to leave the EU as having led to an £18 million loss for the firm, compared with a £20.6 million gain in 2016.

Commenting on the results to the press recently, Paul Hermelin, Capgemini’s Chairman and CEO, confirmed this, remarking that the weakened performance in the region reflected a decline in public sector work and “a market that looks pretty soft with the consequences of Brexit.”

The company also blamed a drop in demand in the UK and Ireland partially on HM Revenue & Custom’s decision to bring its long-running Aspire contract for IT services partially in-house, decreasing its need for IT outsourcing, which had previously cost the tax authority roughly £700 million annually. Capgemini’s profits were also hit by restructuring costs of £16.5 million, a figure closely tied to a “rationalisation programme” which will see staff cuts in certain areas. Capgemini employs 7,838 staff across the UK, and is yet to comment on how many redundancies are planned.

As profits fall and lay-offs loom, however, documents filed at Companies House also revealed that the best-paid director at the firm received a 5% boost in pay last year, bringing total pay to £653,000. On top of this, the unnamed director received a large £1.4 million bonus consisting of shares, unlike 2016 which saw no such pay outs.

Capgemini UK’s parent company published its full-year results in March, and these showed revenue growth in every major geographic region in 2017 apart from the UK and Ireland. Capgemini has since stated that it expects the firm’s region operations “to return to growth” in the second half of 2018. Capgemini’s UK results came shortly after rival consultancy Accenture posted similar declines in the country, with Accenture’s UK net profits tumbling from £125 million to £67 million.