My Passport to Finance

It is important to create an awareness and understanding of the key definitions and rules
that are used to measure Group performance.

TransFORM is a key part of the Group’s set of rules.

Capgemini has an internal set of rules where the Group “Blue
Book” is considered to be the constitution for Capgemini as it
lists all the major Group principles and codes. Specific
guidelines have been developed per subject such as:
 “Deliver” for delivery and project management.
 “Collaborative Business Experience” (CBE) for account
management and sales.
 “TransFORM” for our financial and operational rules.

TransFORM is the Group Financial and Operational Manual. The nearly 500 pager book discusses in
detail a lot of topics such as Governance and Principles, Key Performance Indicators, Bookings and
Funnel, Income Statement, etc… It deals with all our external constraints such as French Commercial
laws or International Financial Reporting Standards (IFRS) but also with our own history,
organization, activities, business models etc.
 Financial information is both a legal requirement and a means to
communicate with the external market. It is the basis on which the
performance of business units and strategic business units are measured.

Clearly, the operations heads and the financial controllers

are accountable for the financial information. But along
with them, the Sales, Human Resources, and Delivery
communities are also responsible for the enforcement of
Group rules and for the reliability of the information they
manage and provide (funnel, bookings, headcount,
project situation, …).

Risks and Controls

The Group can be exposed to a number of risks –

external and internal. External risks could be like
deteriorating market trend(s), new technology, client
insolvency, and labor market shortage. Internal risks
may include non-compliance with rules, errors, frauds.

Controls have been put in place to avoid such risks and to predict, detect, and prevent adversities from occurring.
There are three kinds of controls: transaction controls, IT controls and monitoring controls.

Transaction controls are controls of a unique transaction, mostly done by dedicated teams in our back offices;
whereas IT controls are automated controls embedded in our systems.
Monitoring controls implies that we are monitoring and controlling financial flows (Income Statement, cash flow,
KPIs). These are not only important from a business standpoint but they also solidify our internal control
environment.

Value drivers and KPIs

The value drivers that reflect Capgemini’s performance are Sales, Delivery, Revenue & Costs, People, and Cash. We
have implement numerous KPIs (Key performance Indicators) to track and measure these value drivers:

 Sales – we measure the efficiency of our sales engine and the profitability of the deals
and projects we are pursuing and selling.

 Delivery – we track adequate utilization of our resources; we also measure the quality of
what we deliver to our clients.

 Revenue & Costs – we measure revenue and analyze it in various ways; we also track
different levels of margins and the cost ratios on revenue.

 People – we monitor the fluctuations of our resources as well as its breakdown along
several taxonomies.

 Cash – we measure the efficiency of our cash management as well as working capital.
Irrespective of the discipline of the business unit, the Operation P&L is composed of common sub-totals:

 Revenue

 Direct costs (ie costs born to deliver our projects and engagements)

 = Contribution (ie profitability of our engagements)

 Indirect costs (ie costs for bench, learning time, management, …)

 = Gross margin

 Business Development costs (ie costs to sell and manage accounts)

 Support Functions costs (ie costs for enabling activities such as IT, Finance, HR, Facilities, …)

 GOP or Operating margin

GOP is the profitability on which we measure all Business units, Strategic Business units and ultimately the Group.

Sales KPIs

SPADE is a key tool to manage sales efficiency and forecast our future activity reliably.

 Gross Funnel – It is the sum of all opportunities entered into SPADE.

 Weighted Sales Funnel – Every opportunity has a probability of success.

 Close Rate – The number of opportunities signed compared to the total number
of opportunities.

 Win Rate – The amount of opportunities signed compared to the total amount of
opportunities.

The main risks that we face in the sales process are pricing and profitability, legal risk, poor cash profile, delivery
risk, and non-recoverable revenue. Our deal review process aims at mitigating those and therefore needs to be
strictly applied.
 Income Statement and KPIs

There are two ways of looking at Revenue and

Contribution:

 Project based (CC, APPS and LPS)

 Outsourcing based (IM and BPO)

In the project based business, we analyze revenue and direct cost along a
traditional volume/price mix metrics.

Volume Metric is based on four parameters:

 Days – number of days available (BTU or Billable Time Units)

 CSS – Client Serving Staff

 ARVI – Activity rate (time charged on projects/time available)

 PROR – Productivity rate (time billed to clients/time charged)

The Price Metric is based on a single parameter called COR – Charge out rate (price billed per day)

Correct classification of costs as per TransFORM 2010 enables accurate performance measurement and effective
decision-making.
 Revenue recognition

It is important to define how we calculate the cost and the revenue that flows in the P&L. It is dependent on the
nature of the engagement and the type of the contract we have signed with the client.

There are three natures of engagements. Each engagement nature leads to a typical type of agreement:

 Resource based Time & Material agreement

 Deliverable based Fixed Price agreement

 Service based Service Level agreement

Whatever the nature of the engagement or the type of agreement, costs are usually recognized into the Income
Statement as they incur.

The revenue recognition can be more complex:

 Time & Material: time spent times agreed COR

 Fixed Price: agreed price for deliverable times percentage of completion of delivery (POC method)

 Service Level: agreed monthly fee for service

Net result

Operating margin is not the bottom of our Income Statement.

Cash

Cash is what really counts!

Everybody in the organization can contribute to its improvement, notably by negotiating the best possible
invoicing and payment terms, delivering on time, obtaining upfront payments, invoicing regularly and with high
quality, …

The main KPIs are:

 Collection from clients, in absolute value or as a percentage of revenue

 DOR (days outstanding receivables), ie the amounts in our Balance sheet related to our revenue that clients
have not paid yet (accounts receivable, work in progress, capitalized costs, billed in advance) expressed in days
of revenue

 Business cash flow, ie collection from clients minus all our operational outflows (payments to employees, to
suppliers, to tax, …). BCF is correlated to GOP.

 Free Cash Flow, ie the above minus all other expenses (financial interest, income tax, …).

Balance Sheet

A balance sheet is made of Asset and liabilities.

The group’s assets are made of long term assets (50%) like Goodwills and Fixed assets, Accounts receivables from
clients (25%) and Cash in banks (25%).

The group’s liabilities are made of shareholder’s equity (40%), Financial debt (10%), long term provisions (15%) and
short term operational debts (35%).