MCN Direct Newswire

Vol. 2 No. 33, 8 September 2003

This issue is sponsored by:

Ericom, Apama, The UK Consulting Industry and Xansa

This issue news

1. CGEY trims full-year forecast
2. Diagonal issues profit warning
3. LogicaCMG exceeds expectations
4. Teenagers aspire to IT careers
5. ITNET celebrates at the interim
6. Further information - feedback/forward to a colleague/unsubscribe

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1. CGEY TRIMS FULL-YEAR FORECAST

Cap Gemini Ernst & Young (CGEY) has ducked out of its commitment to achieve a 5% operating margin in 2003, saying it will increase its 2.7% first-half margin to over 5% in the second half for a full-year margin slightly above 4%.

The admission reverses a statement CGEY made in March, reaffirming its commitment to a 5% operating margin this year.

Reporting its results for the six months to 30 June, CGEY turned in a net loss of $98.4 million, including restructuring charges of $114.8 million. This improves on a loss of $279.9 million in last year's comparable period. Revenue for the half-year fell 19% to $3.3 billion.

Commenting on the results, CGEY said stabilisation of revenues and improvement in operating margins was happening at a different pace in different countries. It reported positive signs in the UK, Benelux and Spain, but said the market continues to be slow in France, Italy and the Nordic countries. The company's business reorganisation in North America is expected to bear fruit in 2004.

Breaking revenues down by discipline, CGEY said consulting contributed 23% of total turnover in the first half, but is still suffering from the general economic climate and "companies' lack of interest in investment".

Outsourcing continues to grow, representing 28% of total revenue in the first half, with the technology practice accounting for 41% and Sogeti 8% of revenues.

CGEY noted a 14% increase in bookings during the second half of 2002 and a utilisation rate of 73.7%, up from 72.7% in the second half of 2002 - reflecting a cut in employees from 52,683 at the end of 2002 to 49,411 on 30 June 2003.

Looking forward, the CGEY board said: "Management has set itself the goal of bringing the operating margin for the second half of the year to over 5%, which would translate into a full-year operating margin slightly above 4%. The group maintains its ambition to further improve this figure in 2004."

2. DIAGONAL ISSUES PROFIT WARNING

SAP specialist Diagonal has issued a profit warning after "an unprecedented number of project deferrals" in its core SAP operation during August.

Diagonal said in a trading update: "The majority of these deferrals are a result of business issues within a number of our major clients that have been forced to postpone investment. Indications are that clients are deferring and not cancelling projects."

Diagonal said its secure networks division - the subject of an aborted management buyout in July - had stabilised and is expected to be profitable in the full year to 30 November and that its solutions business is performing ahead of expectations.

This will not be enough to stave off a full-year slide in financial performance, however, with the company saying that the second-half problems in its core SAP business will lead to full-year results "significantly below market expectations".

At the end of the first half, Diagonal reported a net loss of $1.4 million, on turnover down 10% at $49.2 million (MCN Direct 2-29). The profits warning suggests the consultancy will finish the year with a deficit for the first time in 10 years.

Looking ahead, the Diagonal board said: "We remain confident of Diagonal's prospects in the next financial year and beyond, and do not feel that the unprecedented project deferrals currently being experienced represent a general downturn in the wider SAP market."

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3. LOGICACMG EXCEEDS EXPECTATIONS

LogicaCMG has completed its first six months as a merged company by reporting better than expected financial results and savings ahead of plan.

The company made a pre-tax loss of $90.8 million in the six months to 30 June, including goodwill amortisation of $18.6 million and a restructuring charge of $134.3 million. The restructuring cost was slightly higher than estimated, but covered 2,650 job cuts rather than the 2,200 initially envisaged, to leave a total of 21,056 employees at 30 June.

Pro-forma figures for the comparable period in 2002 show a pre-tax loss of $446.5 million, including restructuring charges of $415.5 million.

Revenues in the first half fell 9.6% to $1.3 billion, producing a group operating margin of 5.4%, with IT services on 6.5% and wireless networks close to break even. Order intake in the first half was 12% ahead of revenue.

Commenting on the results, LogicaCMG group chief executive Martin Read said: "Against a challenging economic background, our first six months as a merged company have exceeded our original expectations. The integration programme is well advanced with savings ahead of plan, giving us a more competitive cost base. Combined with our larger scale, this has enabled us to grow our order book substantially. We are bidding and being shortlisted for a number of major tenders such as the NHS IT procurement in the UK."

Read said UK business returned to growth, but added: "The Benelux economy remained fragile with revenues declining by 4% in the first half. In France and Germany market conditions continued to be very difficult."

LogicaCMG expects its wireless networks business to be profitable for the full year, partly as a result of moving more work offshore to India. IT services revenues are expected to increase, fuelled by outsourcing revenues up from 16% of total revenues in the previous six months to 19%.

Breaking revenues down by sector, LogicaCMG's industry, distribution and transport division led the way in the first half with revenues up 9%. The public sector division followed with a 5% gain, while energy and utilities was flat. Telecoms fell 9% and financial services fell 14% in a market focused on cost saving.

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4. TEENAGERS ASPIRE TO IT CAREERS

Teenagers would rather work as IT professionals than pop stars, according to research by IT services firm Parity.

A poll of 100 children found 22% of 12-15 year olds feel that working with computers would be their ideal career because the IT industry provides good salaries and it would be possible to work with exciting technology.

If technology topped the teenage wish list, the least popular jobs were those of the prime minister, bank manager, soldier and teacher. More promising was the aspiration of 15% to become a pop star and 13% to qualify as a doctor.

Commenting on the survey results, European development director at Parity Resourcing Solutions Peter Linas said: "In the past, people have bemoaned a perceived lack of interest in IT in the UK. This tide has been reversed and it's great to see from this research that IT is capturing the younger generation's imagination. This goes to show that the tech industry's image has changed significantly over a short period of time."

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5. ITNET CELEBRATES AT THE INTERIM

ITNET closed the first half of 2003 in style, reporting profit and revenue gains, a record forward-order book and a $27.2 million five-year contract win at National Air Traffic Services (NATS).

The company reported a pre-tax profit of $13.7 million, up from $4.4 million in last year's first half. Revenue for the six months to 30 June rose 4.4% to $140.6 million, with its consultancy business, French Thornton, showing a 16.5% increase in revenue of $10.7 million driven by public sector demand.

ITNET secured its first central government contract in the period - a five-year, $130.7 million deal at the Cabinet Office that was also its largest contract win to date. Public sector revenues rose 10.7% to $80 million during the first half, reflecting strong performance in local government business.

Turnover in the commercial sector slipped 3% to $60.6 million, but was buoyed by a 4.5% gain in the transport sector and a 37.2% gain in utilities.

Chief executive Bridget Blow said: "Despite contrasting conditions in our different markets, we have achieved further growth in profits and earnings per share. Our order book has increased significantly during the period and stands at a record level of $604 million. In addition to the potential growth achievable from the Cabinet Office contract, its high profile will provide us with an excellent platform to realise further opportunities in central government."

Looking forward, ITNET said its forward order book, a strong sales pipeline in the public sector, an above-average contract win rate and an ongoing focus on operating margins suggested "significant growth in 2004 based on another good performance in 2003".

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