Financial results

Spring is the season that European IT services companies traditionally report their second half results – months behind their US counterparts.

But for 2003, very few had anything other than lacklustre results to report, in contrast to the solid increases in revenues and profits posted by some of their US rivals, such as Accenture and CSC.

None were more disappointing than Cap Gemini Ernst &Young’s. It had begun the decade with an ambitious plan to challenge the US IT services elite when it bought consultancy Ernst &Young for $10.9 billion.

But it is still struggling to recover from that ill-conceived acquisition and following year-after-year of revenue falls and restructurings. In the final quarter of 2003, revenues fell by a further 17% to EU1.35 billion.

The company continues to blame the “unfavourable economic environment” for its plight, but its poor performance is only matched by long-troubled Getronics, which only narrowly avoided bankruptcy during 2003.

In particular, Cap Gemini attributes its ongoing problems to the continuing decline in demand for consulting services, which accounts for 21% of the company’s revenue.

At the same time, while the company’s activities in the telecoms and financial services sector showed tentative signs of recovery at the end of the year, only the public sector area of its business showed significantly increased sales during 2003.

This was partly reflected in the surprise EU4.7 billion Inland Revenue outsourcing contract win over equally troubled EDS, but this has yet to contribute to Cap Gemini’s bottom line, as it will only take over from EDS in June 2004.

It will nevertheless need to win many more outsourcing deals – and quickly – if it is not to lose its long-held crown as Europe’s largest IT services supplier in the very near future.

Indeed, the company saw bookings fall during the first three quarters of 2003, until the Inland Revenue deal in the fourth quarter put a more positive complexion on an otherwise difficult year.

Franco-Dutch rival Atos Origin is snapping at its heels and threatens to overtake Cap Gemini if it cannot arrest its decline and deliver the top line growth that it has promised for 2004.

Although Atos Origin’s fourth quarter revenues of EU775 million fell far short of Cap Gemini’s EU1.39 billion, the gap will be closed this year following the completion of its acquisition of SchlumbergerSema in January.

Combined, Atos Origin’s and SchlumbergerSema’s revenues in 2003 added up to EU5.41 billion, just EU340 million shy of Cap Gemini’s EU5.75 billion.

But it may be a case of which company declines the slowest. In the fourth quarter, Atos Origin posted revenues down by 6% to EU775 million. It suggested that although “sentiment” has improved in the market, “actual spending continues to be restrained”.

As a result, Atos Origin is forecasting flat revenues for 2004, while it prioritises the integration of SchlumbergerSema.

The company is planning to increase the pace of integration with the rationalisation of human resources, finance and IT functions, the shedding of 2,333 jobs, and the closure of 35 offices and nine datacentres at a cost of EU150 million during 2004.

Like Atos Origin, LogicaCMG reported a modest drop in revenues too, but it issued a more upbeat forecast and outlook. Revenues fell by 3% in the second half of 2003 to GBP852.3 million, despite the acclaim heaped on the company for its integration of CMG, acquired in November 2002.

According to CEO Martin Read, LogicaCMG’s fall in revenue can be largely attributed to a poor performance in Germany, yet in all areas “the market environment is gradually improving, but clients’ capital expenditure is still subject to tight constraints”.

Like Cap Gemini, LogicaCMG is pushing hard into the outsourcing market, which independent analysts such as Richard Holway suggest will be the fastest growing sector of the European IT services market for the foreseeable future.

On the surface, hardware distributor turned services supplier Computacenter looks as if it was the only European IT services supplier to have bucked the downward trend, after it reported second half revenues up by an impressive 29% to GBP1.227 billion.

Over the full year, revenues rose by 29% to GBP2.48 billion, despite a fall in hardware prices of between 15% and 25%.

But a closer examination reveals that there was no hidden magic at work at Computacenter. Rather, its apparently sparkling results in 2003 were driven by two major acquisitions, rather than organic growth.

If the contributions of Germany’s CC CompuNet and Austria’s GECITS are stripped out – both were snapped up in January 2003 – Computacenter would have reported a 6.7% fall in revenues during the year instead of an increase.

Nevertheless, both acquisitions have helped Computacenter to decrease its dependence on the UK market, which now accounts for 59% of revenues in 2003 compared to 83% the year before, as well as helping it to drive further into the broader services market.

Soon, perhaps, both Cap Gemini and Atos Origin will be looking over their shoulder for Computacenter.


Key supplier financial results – March 2004
Company   Main activity   Period   Period end   Revenue ($m)   Rev change ($m)   Net inc ($m)   Prev net inc ($m)  
3Com Corp Networking systems 3Q04 27-Feb 171.8 -21% -85.6 -79.2
Accenture Ltd Consultancy and IT services 1Q04 29-Feb 3,302.2 17% 123.1 118.7
Adobe Systems Inc Document s/w 1Q05 05-Mar 423.3 43% 123.0 54.2
Advanced Digital Info Corp Storage systems 1Q04 31-Jan 118.3 22% 4.9 1.7
Agile Software Corp Ecommerce manufacturing s/w 3Q04 31-Jan 26.2 46% -4.0 -5.7
American Software Inc Supply chain management s/w 3Q04 31-Jan 14.6 -2% 2.1 1.7
Atos Origin SA* IT services 4Q03 31-Dec 922.3 -6% n/a n/a
AutoDesk Inc Computer-automated design s/w 4Q04 31-Jan 295.3 51% 57.6 6.4
Axon Group Plc* IT &mgmt consultancy services 2H03 31-Dec 43.8 18% 2.2 1.2
BEA Systems Inc Middleware s/w 4Q03 31-Jan 278.1 12% 39.3 35.0
Beta Systems Software Ltd* Data centre automation s/w FY03 31-Dec 66.4 24% 4.2 0.1
Cap Gemini Ernst &Young* IT services 4Q03 31-Dec 1,658.9 -17% n/a n/a
Cognos Inc Business intelligence s/w 4Q04 29-Feb 202.1 23% 46.1 29.6
Computacenter Plc* IT services &h/w distrib 2H03 31-Dec 1,627.4 29% 42.1 24.4
Computer Sciences Corp IT services 3Q04 02-Jan 3,621.2 30% 128.4 105.7
DataMirror Corp* Data management s/w 4Q04 31-Jan 12.4 -8% 1.2 2.5
Descartes Systems Group Supply chain execution s/w 4Q03 31-Jan 16.3 -10% -4.2 -108.5
Exact Software NV* Business applns s/w 2H03 31-Dec 123.3 -6% 16.0 15.2
Geac Computer Corp Business applications s/w 3Q04 31-Jan 116.2 13% 14.4 12.0
Getronics NV* IT services 4Q03 31-Dec 705.0 -15% n/a n/a
Icon MediaLab Int’l AB* Internet development services 4Q03 31-Dec 15.7 -3% -2.0 0.8
IDS Sheer* BPM s/w and consulting 4Q03 31-Dec 83.3 41% 7.5 6.8
IFS AB* Business applications s/w 4Q03 31-Dec 85.2 -7% 2.3 -67.1
ILOG SA S/w components 2Q04 31-Dec 25.6 14% 0.3 -1.2
Intentia AB* Business application s/w 4Q03 31-Dec 103.5 -20% -20.6 -0.7
Intraware Inc Electronic s/w delivery solutions 4Q04 29-Feb 3.0 -7% 0 -0.6
Lawson Software Inc Business applications s/w 3Q04 29-Feb 91.6 17% 2.6 -0.7
LogicaCMG Plc* IT services 2H03 31-Dec 1,457.4 -3% 10.3 -785.1
Marlborough Stirling Plc* Financial software &services 2H03 31-Dec 100.3 -3% 10.6 -64.7
McData Corp Storage switches 4Q03 31-Jan 114.0 8% -7.5 8.6
Merant Plc Change/config mgmt s/w 3Q04 31-Jan 31.8 5% 1.0 0.3
Micron Technology Inc Memory chips 2Q04 04-Mar 991.0 26% -28.3 -619.2
Network Appliance Corp Storage servers 3Q04 30-Jan 297.3 30% 40.2 19.7
Oracle Corp Database &applns s/w 3Q04 29-Feb 2,509.0 9% 635.0 571.0
PalmOne Inc PDA devices &op sys 3Q04 28-Feb 242.5 23% -9.3 -172.3
Parity Group Plc* IT services 2H03 31-Dec 162.5 13% -3.1 -39.8
Progress Software Corp Appln dev &DBMS tools 1Q04 29-Feb 86.4 20% 4.6 4.2
Psion Plc* Handheld computers 2H03 31-Dec 133.7 4% -13.7 -24.1
QAD Inc Manufacturing s/w 4Q04 31-Jan 62.6 10% 6.3 1.7
Red Hat Inc Linux software 4Q04 29-Feb 37.0 36% 5.0 -0.3
Royalblue Group Plc* Financial &CRM applns s/w 2H03 31-Dec 49.0 3% 8.2 13.2
Saba Software Inc Human capital mgmt s/w 3Q04 29-Feb 7.8 -19% -2.3 -4.7
SDL Plc* Globalisation s/w 2H03 31-Dec 57.6 13% -0.4 -2.9
Solectron Corp IT contract manufacturing 2Q04 28-Feb 2,887.40 22% -68 -110.8
Staffware Plc* Workflow automation s/w 2H03 31-Dec 37.1 4% 2.5 2.7
Symbian Limited* Smartphone operating systems 4Q03 31-Dec 25.7 52% n/a n/a
Synopsys Inc Electronic design s/w 1Q04 31-Jan 285.3 6% 32.2 34.4
Tibco Software Inc Appln integration s/w 1Q04 28-Feb 74.4 17% 8.5 1.7
Unit 4 Agresso NV* Business applications s/w 2H03 31-Dec 137.0 5% 8.8 7.3
Verity Inc Text search, content, portal s/w 3Q04 29-Feb 30.5 10% 4.8 3.7
* Figures converted into $US at exchange rates averaged over the reporting period

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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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