MCN Direct Newswire

Vol. 2 No. 42, 10 November 2003

This issue is sponsored by:

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This issue news

1. MCA reports 6.2% rise in consultancy earnings
2. CGEY back on acquisition trail
3. MCG warns of reduced revenue
4. Perot Systems' profit falls
5. BearingPoint flies off with $70 million
6. Further information - feedback/forward to a colleague/unsubscribe

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1. MCA REPORTS 6.2% RISE IN CONSULTANCY EARNINGS

The Management Consultancies Association (MCA) has reported a fourth consecutive quarter of growth in member firms' fee income and claims that "business confidence is returning".

Fees in the third quarter rose 6.2% to $2.2 billion, according to the association's latest spending survey. Outsourcing services led the way, up 21.3% on last year's comparable quarter at $656 million. IT consultancy income rose 2.8% to $488 million, pushing total IT-related work to over 50% of total consultancy industry revenue for the first time since 1997.

Strategy, HR and marketing consulting remained flat in the quarter with revenues of $1.1 billion.

MCA executive director Bruce Petter commented: "We have now seen four successive quarters of growth, which is extremely encouraging. Business confidence plummeted over the past two years due to September 11 and the Iraq war, but this quarter's results indicate that the consultancy sector and its clients are back on track for growth. We also expect the sales cycle for management consultancy and IT work to shorten in the next quarter."

The MCA said that pricing pressure continues to preoccupy the private sector, while the public sector is concerned with the need to meet delivery targets in government programmes. Reflecting these issues, growth prospects are strongest in the public sector, with primary industries, overseas projects and the financial services sector also expected to generate substantial work over the coming months.

2. CGEY BACK ON ACQUISITION TRAIL

Cap Gemini Ernst & Young (CGEY) is bidding for Triaton, the IT services subsidiary of German steel and engineering company ThyssenKrupp, in an effort to increase its presence in this key European market.

CGEY confirmed it is in talks with ThyssenKrupp, but admitted it is not the only bidder interested in Triaton. If CGEY is successful, the Triaton group would add about 2,300 staff to its total of 2,000 in Germany and revenues of approximately $422 million.

ThyssenKrupp announced in May that it was planning to sell non-core subsidiaries in order to focus on its industrial business. Any sale of Triaton, which provides IT services to the automotive, chemicals and manufacturing sectors, is not expected to be complete before spring 2004 but could net ThyssenKrupp about $286 million.

CGEY's bid for Triaton follows its acquisition of IT professional services firm Transiciel in France (MCN Direct 2-40) and is in line with previous attempts to build its strength in Germany. Early this year, partnership talks between CGEY and T-Systems, the IT services division of Deutsche Telekom, broke down after the companies failed to reach agreement on the financial structure of the arrangement (MCN Direct 2-2).

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3. MCG WARNS OF REDUCED REVENUE

Management Consulting Group (MCG) has warned that its 2003 financial results will be below market expectations after the sudden termination of a major contract at its operational improvement consultancy, Proudfoot Consulting.

MCG plunged into the red at the close of the first half, citing losses at its US-based financial management consultancy Parson Consulting and a low order book at the beginning of the year at Proudfoot. With 61% of group turnover generated in North America, the weak US dollar also took its toll (MCN Direct 2-30).

In a trading update, the consultancy confirmed its half-year forecast of an improvement in the second half, but said revenue from the curtailed contract is unlikely to be replaced so close to the end of the year and that it will not be possible to fully adjust staff resources in line with the reduced revenue.

The statement added: "Taking account of the effect of this and the continued weakening of the US dollar, the result for the full year is expected to be below market expectations." MCG had hoped to return to profit in the second half, but analysts suggest it will now do little better than break even.

Looking forward, the board expects MCG to make progress through 2004 on the basis of continued growth in its order book. In sterling terms, the order book was 50% higher at the end of October than on 1 January 2003 and 30% higher than at the same point last year.

4. PEROT SYSTEMS' PROFIT FALLS

Perot Systems has reported a 16% drop in third-quarter net profit to $15.7 million, on revenues rising 8% to $371.3 million.

Revenue from Perot's consulting business - essentially application development, systems integration and package implementation practices - fell 5% compared to last year's comparable quarter, to $15 million, but was up 6% on the previous quarter.

IT Solutions, the company's commercial outsourcing business targeted at specific vertical markets, dropped 2% against last year's comparable quarter to $302.1 million.

Pushing revenue up, Perot's US federal government IT services business rose 181% to $54 million, boosted by the acquisition of Soza & Co, which contributed $33 million in revenue.

Perot also reported that new contract signings over the first nine months rose 19% to $1.1 billion, with deals worth $237 million signed in the third quarter.

Company president and CEO Ross Perot Jr said: "We have delivered the actions necessary for long-term business expansion, including achieving a solid quarter of new contract bookings, expanding revenue to an all-time high, generating strong cashflow and remaining disciplined in our investment decisions."

Fourth-quarter revenues are expected to come in between $363 million and $378 million.

5. BEARINGPOINT FLIES OFF WITH $70 MILLION

BearingPoint has signed a $70 million, six-year managed services outsourcing contract with the International Air Transport Association (IATA).

BearingPoint will implement, manage and staff an invoice management service for IATA that will be deployed via the web. Called IATA InvoiceWorks, the solution will use software that links suppliers and buyers from BearingPoint subcontractor iPayables. BearingPoint will host the global service at a centre in California.

Charles Beard, vice president and managing director of the consumer, industrial and technology practice at BearingPoint, said: "As airlines continue to look for ways to lower their costs, automation of back-office processes has become more of a priority. Automating these office processes allows an airline to direct more of its IT budget to airport automation, security and customer service investments."

IATA's members comprise 275 airlines, accounting for over 95% of international scheduled air traffic.

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