CAP GEMINI ERNST & YOUNG revises outlook for the year
26 June 2001
Prior to the close of the first half ending 30th June, CAP GEMINI ERNST & YOUNG has today revised downwards its forecasts for the first half and objectives for the full year, and has also announced actions to protect its profitability.
Whilst bookings registered during the first months of the year were at a satisfactory level, activity in the Group over the last weeks has experienced a marked slowdown, which has been evidenced by a change in behaviour of its clients and by the phasing, delay or even cancellation of a number of important projects. This slowdown affects particularly:
- Financial Services in the United States and Benelux
- The High Tech sector in the US and in the Nordic countries
- The Manufacturing industry in the US.
Similarly, the Telco sector - which began its own crisis several months ago - has continued its downturn in all countries where it represents a notable part of the revenues of the Group.
In addition, the recent merger in Germany of the two utilities activities of VEBA and VIAG into E.ON Energie will result in a dilution of the Group’s shareholding in the joint venture with the VEBA Group. As a result, the Group will no longer consolidate the revenues from the joint venture.
Taking all these factors into account, we are led to revise our revenue objective for the year to 9 billion Euros (versus 9.6 billion Euros indicated at the beginning of the year). Half of this reduction comes from the US, the balance being split equally between the Telco sector globally and the de-consolidation in Germany. Our revenues for the first half year should be 4.4 billion Euros.
This slowdown in activity during the second quarter has led to a deterioration of our utilization rates, hence our operating margin which will be around 6% for the first half.
In this context, a cost cutting action plan has been immediately developed and its implementation has already started, which includes the following:
- a reduction in headcount of 2,700, mainly in the United States, United Kingdom, Nordic countries and across our Telco operations worldwide,
- the transfer of 700 support staff to client facing roles, as a consequence of, in particular, operational structures simplifications,
- the delay or phasing of a number of market development initiatives which are non-priority in the current environment,
- significant reduction in general expenditure.
Due to these measures, our operating margin in second half should be between 8% and 9%, provided there is no further significant deterioration in the economic environment.
The one-off cost of these restructuring plans is estimated to be around 85 million Euros for the full year and will be accounted for in the first half. The costs will be partly offset by already realised exceptional gains (30 million Euros), predominantly from the sale of the Group’s business process outsourcing activities in the UK to Vertex.
Provisional results for the fist half will be released on July 30th.
o0o
