European IT services sector goes into decline

This is the season of European annual results, when companies typically try to mask or enhance the picture of their most recent financial performance by choosing to publish only numbers for the full year. When pulled out from the annual figures, in most cases, these latest fourth-quarter or second-half results make uncomfortable reading.

That was most prominent in the IT services sector. Cap Gemini Ernst & Young (CGE&Y) seemed content with its annual performance as revenues (including revenues from its May 2000 acquisition of Ernst & Young's consulting division) slipped by a modest 0.6% to €8.42 billion ($7.58bn) and net profits dropped from €547 million ($492m) to €152 million ($137m).

However, unpublished details of its performance in the closing quarter of 2001 were less appealing. When extracted from the annual numbers, CGE&Y's fourth quarter showed revenues down 13% to €2.00 billion ($1.80bn). The company pointed to a sharp downturn in bookings in the second half as organisations became more cautious about new projects, creating "an extremely difficult market". Moreover, the usual benefit from a strong positive seasonal effect in the closing quarter simply failed to materialise, and as a result first quarter 2002 revenue will be "significantly lower" than both the first and fourth quarters of 2001.

Looking forward with some optimism, the company observes that "many clients who had suspended projects [in the second half of 2001] have begun to re-launch them based on new budgets approved for 2002." But the real turnaround cannot be expected before mid-year, says Paul Hermelin, the new CEO of CGE&Y.

There was similar story at Holland's Getronics (the company that acquired Wang Global in 1999 and whose revenue base is split two-thirds services, one-third product delivery). For the year, the company reported flat revenues of €4.15 billion ($3.74bn), but the second half showed revenues down 7% to €2.05 billion ($1.84bn) – again not a decline the company chose to mention. That compared with a 10% growth in the first half.

The weaker performance stemmed largely from the company's US operations, which account for a quarter of overall business. The company blamed the economic recession for the 7% drop in services revenue over the full year. Annual revenue in Europe was up 1%.

There was also an anomaly on the balance sheet. In light of "the new market reality", the company reassessed the value of its investments, and the resulting "impairment of goodwill" produced a one-off net loss of €1.04 ($0.94bn).

Second half revenue was also impaired at Anglo-Dutch services company CMG. A 1% growth rate to £463.7 million ($667.7m) for the six months was hidden in the reported 14% rise to £920.4 million ($1.32bn) for the full year.

However, there were more impressive performances in the services sector – mostly at smaller, more specialist companies. ITNet, where half of revenues come from the public sector, was more buoyant, although second period business was still slower. For the full year the company reported revenues of £176.5 million, an 11% rise, after wins with local councils fuelled growth of 14% to £86.0 million ($123.8m) in ITNet's public sector division. That helped the company turn a loss in 2000 into a profit of £6.6 million in 2001. Second half revenue growth slipped a few percentage points to 7%.


IT services vendors
  Description   Period   Period end   Revenue ($m)   Rev change   Net Inc ($m)   Prev net Inc ($m)  
Atos Origin SA* IT services 2H01 31-Dec 1,367.60 6% 50.1 37.8
Cap Gemini Ernst &Young* IT services 4Q01 31-Dec 1,803.60 -13% n/a n/a
CMG Plc* IT services 2H01 31-Dec 667.7 1% -881.3 23.9
Computer Horizons Corp IT services 4Q01 31-Dec 95.1 -12% -3 -50.2
Getronics NV* IT services 2H01 31-Dec 1,843.20 -7% -1,005.30 5.4
Groupe Bull SA* Systems &IT services 4Q01 31-Dec 681.8 -21% n/a n/a
Heyde AG* Consulting &sys integration 4Q01 31-Dec 22 -17% n/a n/a
Icon MediaLab Intl AB* Internet development services 4Q01 31-Dec 18.6 -59% -44.6 -188.8
ITNet Plc* IT services 2H01 31-Dec 128 7% 6 -6.2
Parity Plc* IT services 2H01 31-Dec 167.8 -10% -5.5 6
* All currencies converted in $US at current exchange rate

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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