Financial results

It is perhaps unsurprising that of the companies that published financial results in September (mainly non-US companies, as many North American businesses are in a quiet period) it is the IT support and services providers that lead the pack in terms of business growth.

Indian IT service provider Tata Consulting Services (TCS), for example, reported 37% growth in the first quarter of its fiscal year 2006 to $623.2 million, demonstrating the increasing willingness among Western businesses to entrust IT support to offshore companies.

TCS, which in early September was awarded the ‘UK Trade and Investment Special Recognition Award’ by the British Prime Minister, Tony Blair (to little fanfare in the UK), derived 65% of its revenue in the period from contracts in the United States and 25% in Europe. The company managed to inch down staff attrition, seemingly the curse of service companies in developing nations, from 7.9% annually to 7.6%, its quarterly report reveals.

However, European services companies turned out robust performances as well. UK-based SAP ‘business transformation strategy’ provider Axon Group, for instance, grew revenues by 51% in the first half of its fiscal year. This success, of course, mirrors the fortunes of business applications giant SAP, whose own revenues have swelled over the past year.

In 2004, Axon acquired Malaysian IT support company MyDruid, which was at the time a loss making operation. The revenue contribution from the Kuala Lumpur site was a modest £1.5 million ($2.65 million), but the strategy – to use MyDruid’s resources as an offshore outsourcing destination and a foothold in Asia – indicates that some European companies might yet profit from the booming Asian outsourcing market.

French IT services company Capgemini, Europe’s largest indigenous player, reported its first profit in three years. Although this dramatic turnaround may be a result of the fact that the company switched reporting conventions this year (from French to international accounting standards), the company nevertheless chalked up a year-on-year revenue growth of 17%, and an operating margin that has swung from -1.5% to 1.8% in the last twelve months.

Revenue from establishing and managing outsourcing contracts grew by 64% compared to the same period in the previous year. This growth was driven by a handful of large outsourcing contracts that Capgemini signed off in the first half of 2005, including a major deal with the UK’s Inland Revenue. As it ramps up its outsourcing activities, revenues from the company’s consultancy arm continue to shrink.

Capgemini’s CEO Paul Hermelin says that the price pressure the company was under, presumably in the face of offshore services companies, has began to ease and prices in the market have now begun to climb.

Not all European IT services providers were so upbeat. Tietoenator, the largest IT services company in Scandinavia, managed to keep apace with the sector, turning in revenue expansion of 12%, while acknowledging that this growth had been hard won. A statement from TietoEnator lamented that while demand for IT services was on an upward trend, “the gradually improving market conditions have not alleviated competition, which remains intense.”

Nevertheless, the value of the IT services business was demonstrated by UK-based Morse. Last year Morse instigated a major transformation of its business by ceasing its longstanding hardware reselling operations, and acquiring further consultancy capacity through the purchase of UK rival Diagonal. That transformation was rewarded by a return to revenue growth in the closing quarter of 2004, and in September the company announced a return to operational profitability and an 8% revenue hike for the first half of fiscal 2005.

Where are they now?

When Research in Motion’s BlackBerry mobile email device became the executive toy du jour in 2003, many foretold of the demise of the PDA. But two companies synonymous with PDAs, Palm (formerly PalmOne) and Psion, both reported financial performances that exceeded expectations this month.

Despite poor take-up of its Treo smartphones in Europe and the acquisition of its dismembered software arm PalmSource by a Japanese competitor, Palm grew revenues by 25% in its first quarter of 2006, as compared to the previous year.

Worldwide sales of the Treo grew by 160% in that time, spurred by its popularity in North America. And the announcement in September that Palm is to produce versions of the Treo that run on erstwhile arch-rival Microsoft’s Windows Mobile operating system would suggest there is more growth to come.

Meanwhile, the UK’s Psion, which has long given up making its late-1990s, must-have handheld, managed a financial performance that surprised even its closest watchers. Although the company’s revenue growth (also 25%) was largely provided by sales of shares in the mobile operating system developer Symbian, Psion also won lucrative contracts providing ruggedised RFID readers for, among others, the US military.


Key supplier financial results reported in September 2005
Company   Main activity   Period   Period end   Revenue ($m)   Rev change   Net inc ($m)   Prev net Inc ($M)  
3Com Corp Networking systems 1Q06 02-Sep 177.6 9% -42.0 -35.5
Access Accounting Accounting s/w 2005 30-Jun 15.9 32% n/a n/a
Adobe Systems Inc Document s/w 3Q05 02-Sep 487.0 21% 144.9 104.5
American Software Inc Supply chain management s/w 1Q06 31-Jul 16.8 22% 1.1 1.2
Andrew Corp Networking systems 3Q05 30-Jun 487.2 -1% 130.0 17.8
Aspen Technology Inc Supply chain mgmt s/w 4Q05 30-Jun 70.5 -21% -26.1 -36.7
Axon Group Plc* IT services 1H05 30-Jun 74.7 51% 5.9 3.4
Capgemini SA* IT services 1H05 30-Jun 4,513.6 17% 75.4 -204.1
CDC Corp Manufacturing/CRM s/w 2Q05 30-Jun 64.6 44% 0 -2
Coda* Financial s/w 1H05 30-Jun 42.4 6% n/a n/a
Cognos Inc Business intelligence s/w 2Q06 31-Aug 212.0 14% 28.7 27.6
Compel Group Plc* Systems integration 2H05 30-Jun 69.4 10% 0.6 -0.1
Computacenter Plc* IT svcs &technology distributor 1H05 30-Jun 2,130.4 -6% 4.0 36.9
Dassault Systemes SA* Engineering design s/w 2Q05 30-Jun 282.5 13% 49.1 46.5
Descartes Systems Group Supply chain execution s/w 2Q06 31-Jul 11.4 3% 0.9 -22.7
Dicom Group Plc* Document capture s/w 2H05 30-Jun 171.8 17% 5.1 5.6
Exact Software NV* Business applns s/w 1H05 30-Jun 132.1 1% 17.3 20.8
Geac Computer Corp Business applications s/w 1Q06 31-Jul 103.7 -3% 11.3 13.5
GL Trade* Connectivity s/w 1H05 30-Jun 113.2 20% 15.1 11.8
Gresham Computing Plc* Banking/integration/storage systems 1H05 30-Jun 12.3 8% -1.2 -1.0
Groupe Bull SA* Systems &IT services 1H05 30-Jun 743.3 1% 12.2 4.8
i2 Technologies Inc Supply chain mgmt s/w 2Q05 30-Jun 89.5 -19% 31.5 11.9
IDS Sheer AG* Business process consultancy 2Q05 30-Jun 101.9 17% 5.9 3.8
Intl Business Sys AB* Business applns s/w 2Q05 30-Jun 725.3 6% 4.6 -0.7
Intershop Communications AG* E-commerce s/w 2Q05 30-Jun 5.5 -14% -1.4 -0.1
Lenovo Group Ltd* PCs &PC components 1Q06 30-Jun 2,510.4 234% 46.5 41.2
LogicaCMG Plc* IT services 1H05 30-Jun 1,649.6 11% 44.6 27.6
Logility Inc Supply chain s/w 1Q06 31-Jul 7.9 46% 0.9 0.4
Macro 4 Plc* Doc/output/sys mgmt s/w 2H05 30-Jun 30.5 2% 0.7 -0.2
Manugistics Group Inc Supply chain mgmt s/w 2Q06 31-Aug 43.6 -15% -6.1 -17.1
McData Corp Storage switches 2Q05 31-Jul 165.3 68% 3.8 2.0
Morse Plc* IT services 2H05 30-Jun 373.9 5% -21.3 -13.6
Open Text Corp Content management s/w 4Q05 30-Jun 109.4 4% 5.0 9
Oracle Corp Database &applns s/w 1Q06 31-Aug 2,768.0 25% 519.0 509
Palm Inc PDAs 1Q06 31-Aug 342.2 25% 18.2 19.6
Parity Group Plc* IT services 1H05 30-Jun 164.3 7% -3.4 -0.1
Progress Software Corp Appln dev &DBMS tools 3Q05 31-Aug 99.5 11% 13.4 8.5
Psion Plc* Handheld computers 1H05 30-Jun 146.1 25% 8.3 1
Royalblue Group Plc* Financial &CRM applns s/w 1H05 30-Jun 63.1 20% 6.5 5.3
SCO Group Inc Unix s/w licensing 3Q05 31-Jul 9.4 -17% -2.4 -7.4
SDL Plc* Globalisation s/w 1H05 30-Jun 63.0 11% 3.3 2.1
Sophos Plc Anti-virus software 2005 31-Mar 122.5 19% n/a n/a
SSA Global Technologies Inc Business applications s/w 4Q05 31-Jul 186.9 7% 8.9 3.1
Stellent Inc Content management s/w 1Q06 30-Jun 28.6 26% 1.1 -3.8
Tata Consultancy Services* Offshore IT services 1Q06 30-Jun 623.2 37% 142.3 116.1
Tibco Software Inc Process mgmt &integration s/w 3Q05 28-Aug 105.9 0% 13.8 8.6
TietoEnator Oyj* IT services 2Q05 30-Jun 557.7 12% n/a n/a
Unify Corp Appln dev/deployment tools 1Q06 31-Jul 2.7 0% -0.1 -0.5
Verity Inc Text search, content, portal s/w 1Q06 31-Aug 35.5 2% 0.2 2.5
Versant Corp Object databases 3Q05 31-Jul 4.5 -15% -14.4 -3.8
*figures converted to $US at exchange rates averaged over the 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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