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Analysis of Cap Gemini Ernst & Young’s 2002 Results

The Ten-year Glitch

Declining Profits Turns to Losses Amid Cutbacks and Restructuring

WESTERN AUSTRALIA, Mar 3 - Cap Gemini Ernst & Young (CGE&Y) seems to be afflicted with a 10-year glitch.  Every decade or so, the company bleeds “red ink.” 

The last time around the management was forced into scratching a “red ink” (gl)itch was in the 1992-1993 period.  Just as in 2002, declining profits had turned into losses (on the heels of the Gulf War and the ensuing 1991 recession - see the chart).

When CGE&Y released its latest 2002 business results on Feb 28, they contained a loss of €514 million ($549 million) on revenues of €7 billion ($7.5 billion).  Thanks to vagaries of foreign currency translations, however, i.e., the weakening of the U.S. dollar, the 2002 revenue amount was down 16% in €uros from the comparable 2001 figure, but up 3% in U.S. dollars.  


Our report then goes on to analyze the full year 2002 CGE&Y results - by industry, by geography and by horizontal lines of business.  

Here are some additional excerpts:


Of the four major CGE&Y geographic segments, France turned in the best performance (meaning, France shrank the least - by 9% from 2001).  North America and UK/Ireland revenues declined 16% and 13% respectively, with the British Isles “distinguishing” themselves additionally with a €24 million operating loss (North America recorded a €42 million operating profit).


Industry Segments

As most major IT services providers have been reporting, ever since 9/11, global competitors have been operating in a global war economy.  As a result, the government sector has been booming while private enterprises languished.  

CGE&Y was no exception.  Its public service and health care industry segment thrived in 2002 (up 37% to 26% of total revenues), while most of the others shrank.  The only exception was the “life sciences” sector that also grew (by 7%) to 7% of global revenues. 


Horizontal Segments

Outsourcing was the only CGE&Y horizontal business segment to show discernible growth in 2002.  It grew by more than 30% to over $2 billion, or 27% of total revenues.  

The “project consulting” (including systems integration) dropped from 72% of the total revenues in 2001 to 67%, while Sogeti, a newly formed entity in early 2002 (see Analysis of CGE&Y 2001 Results, Feb 21, 2002), declined from 7% to 6% of the total.


Summary & Outlook

Last year was clearly a period the CGE&Y management and shareholders would rather forget.  But if you listen to their expectations in the future, it was also the year that prepared them for weathering the continued tough economic environment in 2003.


Don’t we live in interesting times? (which happens to be an old Chinese curse - “may you live in interesting times”).  With the present and the past being so awful, going “back to the future” while scratching the 10-year (gl)itch seems an appealing proposition. 


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"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, and who are now reading the complete Annex Bulletin (12 pages in print edition), along with 2 tables and 18 charts which back up our analysis.

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Happy bargain hunting!

Bob Djurdjevic

A selection from prior years

Analysis of CGE&Y 2001 Results (Feb 21, 2002), Analysis of Cap Gemini Ernst & Young 2000 ... (2001),  CGG 1999 Preliminary (Mar 10, 2000),  CGG Annual Report 1998 (June 18, 1999),  CGG: The Most Improved (1998)

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Volume XIX, No. 2003-05
March 3, 2003

Editor: Bob Djurdjevic
Published by Annex Research
e-mail: annex@djurdjevic.com

P.O. Box 97100, Phoenix, Arizona 85060-7100
TEL/FAX: (602) 824-8111

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