The fortunes of two European IT players and their differing degrees of exposure to the turmoil in Asia were highlighted last week, when French systems integrator and consultant Cap Gemini and Germany’s ERP heavyweight, SAP, issued preliminary results for the first half of the year. Cap Gemini Group announced provisional net profit for the six months to June 30 at the equivalent of $73.8m, a 97% increase, in dollar terms, on the same period last year, on revenue that rose 28.4% to $2.03bn. SAP, on the other hand, indicated a 40% increase in pre-tax profits (no net profit figure was released) on revenues that rose 60%. One fundamental difference is that, while both companies are present in a number of markets around the world, Cap is not heavily exposed in Asia. Its revenues for the first half break down by region as follows; 23% in both the UK and France, 17% from the Benelux, 15% USA, 13% Scandinavia and 9% from other regions. In other words, the impact of the Asian debacle was negligible, in Cap’s case. At SAP, on the other hand, the fallout from the crisis was sufficiently drastic for the company to include in its preliminary statement the following remarks, The slowdown in Asia had a stronger than expected effect on performance in the second quarter. Revenues for the Asia Pacific region in the second quarter were below last year’s level due mainly to exchange rate movements, and to downsizing in investments and software implementation projects in the region, including Japan. Cap Gemini attributed its performance to strong growth in most European markets, together with an increase in the number of contracts for euro conversion work in time for European Monetary Union, due to take place at the beginning of 1999. Despite the Y2K phenomenon, however, the breakdown of its revenues by area of activity didn’t change notably in the first half from the same period in 1997, with 26% from Consultancy, 23% from Systems integration, 23% from Systems development, 21% Outsourcing and 9% Other. The company says it is targeting revenues of $4.1bn this year and a net profit of at least $164m. Interestingly, as a reflection of the healthy state of the European markets, both groups have been growing their workforce dramatically this year. Cap Gemini says it has added 4,000 new employees, while SAP plans a total of 5,000 over the whole of 1998. That in turn represents a significant increase in their costs: SAP’s costs were up 66%, primarily due to recruitment. At Cap, on the other hand, a spokesperson says the additional workers were taken on to cope with the significant increase in its business, and the fact that profitability has actually increased indicates that the French group has been able to expand its human resource base without eating into net income. SAP said it was maintaining its forecast of a 30-35% increase in pre-tax profits for the entire year. Both companies’ stocks fell on their respective stock exchanges Friday, however, as investors clearly preferred to take profits now rather than wait for a further increase. SAP closed down 4.5% in Frankfurt, while Cap Gemini ended the day down 4.3% on the Paris Bourse.
