An industry survey conducted by PricewaterhouseCoopers and sponsored by the Interactive Advertising Bureau (IAB) just released today shows that US internet advertising revenue is strong, growing and fairly resilient to the economic slowdown.
US internet advertising revenues were $23.4 billion for the entire year of 2008, with $11.5 billion coming in the first half and $11.9 in the second half. Full year 2008 revenue was an astonishing 10.6% higher than full year 2007 of $21.2 B, keeping in mind that traditional advertising may have shrunk in this period. Q4-2008 revenue of $6.1 B sequentially increased 4.5% from Q3-2008 and 2.6% from Q4-2007. Note that internet advertising was only around $2 billion in 1998, and has grown twelve-fold in just ten years!
This is what Randall Rothenberg, President and CEO, IAB had to say about this significant shift, “We are seeing an ongoing secular shift from traditional to online media as marketers recognize that ad dollars invested in interactive media are effective at influencing consumers and delivering measurable results. In this uncertain economy, where marketers know they need to do more with less, interactive advertising provides the tools for them to build deep, engaging relationships with consumers—the experience marketers gain from this will deliver dividends especially after the economy turns around.”
In other words, internet advertising is working for advertisers! They can get customers, immediate results and good ROI, compared to traditional advertising, where reach, measurement and effect are much more diffuse.
What’s working within internet advertising?
Search continues to be the leader at 46% of total spend, banners follow at 21%, classifieds at 13%, lead generation at 7% and rich media at 7% of Q4-2008 revenues.
However, online advertising is really concentrated. The ten top ad-selling companies, accounted for 72% of Q4-2008 revenues, companies ranked 11-25 accounted for 11% and companies ranked 26-50 accounted for 8%.
And some additional good news for Google and Yahoo: Search revenues were $2.8 B, 46% of total Q4-2008 revenues, up from $2.5 B or 42% of total revenues in Q4-2007. Google’s Q4-2008 US revenue was $3.8 B of which around half was US revenue, so $1.9 B. Thus Google’s share of total US search revenue comes to $1.9B/$2.8B or 68% which generally corresponds to its percentage share of the US search market.
By industry, retail advertisers were 22% of 2008 revenues, followed by Financial Services at 13%, automotive advertisers at 12%, computing advertisers at 12%, telecom companies at 9% and Media accounted for 5%.
Another significant trend seen in this study that Performance Based advertising is steadily gaining over CPM or Impression Based advertising.
This study has critical implications for advertisers, publishers, marketers, internet companies, consumers and investors. If internet advertising continues to grow at this rate and steal share from traditional advertising, the net may quite be the place to be in the future!
The full study is here http://ow.ly/1IEE
Monday, March 30, 2009
Friday, March 27, 2009
Accenture Indicates Profound and Dramatic Shift At Clients, Shares Swoon
Accenture had its Q2-2009 conference call yesterday at 4:30pm and we summarize for you the key points of that call. Accenture’s stock fell 11% upon release of Q2-2009 earnings, although they beat the Q2-2009 EPS estimate by 1 cent (actual 63 cents versus consensus 62 cents), the revenue was less than expectations and the outlook for the third quarter and the year was lowered quite significantly. We were anticipating a Q2 beat, but certainly not expecting such a sharp decrease in out-quarters, and this we found was equally surprising to the company, analysts and investors. ACN dropped its revenue and EPS guidance for the year, citing uncertainty, FX headwinds and lack of visibility, which did not sit well with investors.
The conference call was very revealing, it demonstrated the depth and breadth of the global economic turmoil deep within companies. Accenture, which was riding high, and seemingly unaffected by this slowdown was caught unaware of the dramatic change in consulting environment from December, when things seemed fine, to January where clients were apparently in a state of shock, numbed and facing upto a very uncertain 2009.
KPMG was the last Big4 firm to report, and its full year 2009 ended September 2008, a full three months after the other Big4 firms reported their full year 2009 ending June 2009. KPMG’s revenue growth was a bit below the other Big4 firms as its year covered more months of the global crisis. Now we see Accenture talking about a “profound difference” between December 2008 and January 2009. And that just a month can make a huge impact on such a large and diversified company such as Accenture shows the enormity of what is going on in client companies.
The market today is lower as it digests the surprise from Accenture and ponders on implications for operating results and professional service companies.
We’ll summarize / paraphrase what each Accenture player had to say both in remarks and in answers to questions, some we have left verbatim as it just conveys better the emotions around what is happening in the marketplace:
Bill Green, Accenture Chairman & CEO
“…Accenture's second quarter was a solid one. Revenues were $5.3 billion, an increase of 3% in local currency. We grew operating income 6% and expand operating margin by 150 basis points, We delivered solid EPS of $0.63, and new bookings of nearly $6 billion. We continue to generate significant amounts of cash, and we have a very strong balance sheet with no debt.
At the end of the day, our visibility isn't any different than it's been. But, our predictability, right, is not as good as it used to be. The difference between December and January was profound. People came back to work after the holiday in January, and things just slowed down. Because if you would look at what happened from mid-December through the beginning of January as it relates to the economy, it was very profound. There was a whole lot going on. As people came back to work, people just took a pause. And the pause, that had been what we described last time was deer in the headlights -- became an institutional thing as everybody sat there uncertain about what direction the economy was going to go in.
Some of our clients -- they don't even have their '09 budgets finalized yet. If you think about that, really what we are trying to account for here is that -- the plain uncertainty -- the work hasn't gone anywhere. There is a lot of things to do. There are some people that have laundry lists of things they have to get at. People are just very uncertain out there. It was really a January, February, phenomenon, and it is uncertain sitting here right now to know, how that is going to thaw and play out. That's really the reason for the range that we put in there. Just because the client environment is just so unpredictable on a global and on an industry-by-industry basis, and we don't want to be surprised again.
And all that stuff just happened as people's mental models said we get '08 behind us, and as soon as people got into '09, I think they said we don't see '09 being much better. And in fact, it may be worse. And that was the light switch, if you will, that happened in January, and those were the pieces. The other thing is the pipeline had been a little fickle, not in terms of its quality but in terms of speeds of decision. As we crossed into '09, everyone decided -- you don't get any points for initiating a new project in the middle of challenging economic times. So there has been slowdown in converting pipeline to revenue, particularly in the consulting type of work, which is the stuff that converts within a month from pipeline to revenue. Those are the things that happened that, frankly, were a surprise to me.
…I think what has happened in March is people are getting their minds around how they are going to play the hand for '09. Because there have been personnel actions in most large companies. And so, people are recasting their '09 operating plans, their budget, and where they think the year is going to come out. They are re-examining the priorities of their initiatives in the work. Some of this demand and drive and activity around outsourcing has come out of -- what are the actions they are going to take to get their economic house in order for '09?”
Pamela Craig, Accenture CFO
“Net revenues for the second quarter were $5.27 billion, a decrease of 6% in US dollars and an increase of 3% in local currency over the same period last year. Q2 revenues were below our guided range of $5.45 billion to $5.65 billion, reflecting FX impact of negative 9%.
Consulting revenues were $3.03 billion, a decrease of 10% in US dollars and 1% in local currency. Outsourcing revenues were $2.24 billion, a decrease of 1% in US dollars, and an increase of 9% in local currency.
There has been a noticeable change in the demand environment as clients grapple with how a macroenvironment full of continuing economic challenges impacts their priorities.
For Q3-2009, expect revenues to be $5.1 billion to $5.3 billion, which assume a FX drag of approximately 12%. We expect operating margin this fiscal year to be in a range of 13.4% to 13.7%. Taking into account the updated revenue growth outlook, we now expect new bookings to be in the range of $23 billion to $25 billion. EPS to be in a range of $2.60 to $2.67. “
Steve Rohleder, Accenture COO
"Clearly, the global marketplace has shifted dramatically over the past few months. Beginning in January, we saw heightened marketplace uncertainty, which led to a systemic pause in certain segments of the market. This resulted in three factors affecting our consulting business. First, clients have started deferring decisions about new work, which has resulted in a slowdown in converting our pipeline to revenue in the quarter. Second, the small extensions and add-ons, that normally come through each quarter, did not come through at the rate we have seen historically. In fact, some clients are still operating without approved annual budgets. And third, in some cases, clients have asked us to work with them on reducing the run rate on existing consulting projects.
In this environment, companies are rethinking their priorities, looking at projects that will provide meet an immediate return on investment, deferring large, new, transformational IT projects, and turning to outsourcing to lower their cost structures. These shifting priorities are affecting each of our growth platforms in different ways.
In Management Consulting, clients are focused on sustained cost reduction and operational improvement. We are seeing an increase in CEO-sponsored efforts in areas such as customer retention, supply chain optimization, and M&A integration.
In Outsourcing, demand for application outsourcing remains strong as clients are seeking opportunities for near-term cost reductions. We are also seeing demand in BPO, particularly in finance and accounting and procurement . This demand coupled with the increased activity we are seeing in the pipeline, clearly supports our view that there is an acceleration in outsourcing opportunities. Our focus is on accelerating the conversion of the opportunities in our pipeline to bookings and revenue."
The conference call was very revealing, it demonstrated the depth and breadth of the global economic turmoil deep within companies. Accenture, which was riding high, and seemingly unaffected by this slowdown was caught unaware of the dramatic change in consulting environment from December, when things seemed fine, to January where clients were apparently in a state of shock, numbed and facing upto a very uncertain 2009.
KPMG was the last Big4 firm to report, and its full year 2009 ended September 2008, a full three months after the other Big4 firms reported their full year 2009 ending June 2009. KPMG’s revenue growth was a bit below the other Big4 firms as its year covered more months of the global crisis. Now we see Accenture talking about a “profound difference” between December 2008 and January 2009. And that just a month can make a huge impact on such a large and diversified company such as Accenture shows the enormity of what is going on in client companies.
The market today is lower as it digests the surprise from Accenture and ponders on implications for operating results and professional service companies.
We’ll summarize / paraphrase what each Accenture player had to say both in remarks and in answers to questions, some we have left verbatim as it just conveys better the emotions around what is happening in the marketplace:
Bill Green, Accenture Chairman & CEO
“…Accenture's second quarter was a solid one. Revenues were $5.3 billion, an increase of 3% in local currency. We grew operating income 6% and expand operating margin by 150 basis points, We delivered solid EPS of $0.63, and new bookings of nearly $6 billion. We continue to generate significant amounts of cash, and we have a very strong balance sheet with no debt.
At the end of the day, our visibility isn't any different than it's been. But, our predictability, right, is not as good as it used to be. The difference between December and January was profound. People came back to work after the holiday in January, and things just slowed down. Because if you would look at what happened from mid-December through the beginning of January as it relates to the economy, it was very profound. There was a whole lot going on. As people came back to work, people just took a pause. And the pause, that had been what we described last time was deer in the headlights -- became an institutional thing as everybody sat there uncertain about what direction the economy was going to go in.
Some of our clients -- they don't even have their '09 budgets finalized yet. If you think about that, really what we are trying to account for here is that -- the plain uncertainty -- the work hasn't gone anywhere. There is a lot of things to do. There are some people that have laundry lists of things they have to get at. People are just very uncertain out there. It was really a January, February, phenomenon, and it is uncertain sitting here right now to know, how that is going to thaw and play out. That's really the reason for the range that we put in there. Just because the client environment is just so unpredictable on a global and on an industry-by-industry basis, and we don't want to be surprised again.
And all that stuff just happened as people's mental models said we get '08 behind us, and as soon as people got into '09, I think they said we don't see '09 being much better. And in fact, it may be worse. And that was the light switch, if you will, that happened in January, and those were the pieces. The other thing is the pipeline had been a little fickle, not in terms of its quality but in terms of speeds of decision. As we crossed into '09, everyone decided -- you don't get any points for initiating a new project in the middle of challenging economic times. So there has been slowdown in converting pipeline to revenue, particularly in the consulting type of work, which is the stuff that converts within a month from pipeline to revenue. Those are the things that happened that, frankly, were a surprise to me.
…I think what has happened in March is people are getting their minds around how they are going to play the hand for '09. Because there have been personnel actions in most large companies. And so, people are recasting their '09 operating plans, their budget, and where they think the year is going to come out. They are re-examining the priorities of their initiatives in the work. Some of this demand and drive and activity around outsourcing has come out of -- what are the actions they are going to take to get their economic house in order for '09?”
Pamela Craig, Accenture CFO
“Net revenues for the second quarter were $5.27 billion, a decrease of 6% in US dollars and an increase of 3% in local currency over the same period last year. Q2 revenues were below our guided range of $5.45 billion to $5.65 billion, reflecting FX impact of negative 9%.
Consulting revenues were $3.03 billion, a decrease of 10% in US dollars and 1% in local currency. Outsourcing revenues were $2.24 billion, a decrease of 1% in US dollars, and an increase of 9% in local currency.
There has been a noticeable change in the demand environment as clients grapple with how a macroenvironment full of continuing economic challenges impacts their priorities.
For Q3-2009, expect revenues to be $5.1 billion to $5.3 billion, which assume a FX drag of approximately 12%. We expect operating margin this fiscal year to be in a range of 13.4% to 13.7%. Taking into account the updated revenue growth outlook, we now expect new bookings to be in the range of $23 billion to $25 billion. EPS to be in a range of $2.60 to $2.67. “
Steve Rohleder, Accenture COO
"Clearly, the global marketplace has shifted dramatically over the past few months. Beginning in January, we saw heightened marketplace uncertainty, which led to a systemic pause in certain segments of the market. This resulted in three factors affecting our consulting business. First, clients have started deferring decisions about new work, which has resulted in a slowdown in converting our pipeline to revenue in the quarter. Second, the small extensions and add-ons, that normally come through each quarter, did not come through at the rate we have seen historically. In fact, some clients are still operating without approved annual budgets. And third, in some cases, clients have asked us to work with them on reducing the run rate on existing consulting projects.
In this environment, companies are rethinking their priorities, looking at projects that will provide meet an immediate return on investment, deferring large, new, transformational IT projects, and turning to outsourcing to lower their cost structures. These shifting priorities are affecting each of our growth platforms in different ways.
In Management Consulting, clients are focused on sustained cost reduction and operational improvement. We are seeing an increase in CEO-sponsored efforts in areas such as customer retention, supply chain optimization, and M&A integration.
In Outsourcing, demand for application outsourcing remains strong as clients are seeking opportunities for near-term cost reductions. We are also seeing demand in BPO, particularly in finance and accounting and procurement . This demand coupled with the increased activity we are seeing in the pipeline, clearly supports our view that there is an acceleration in outsourcing opportunities. Our focus is on accelerating the conversion of the opportunities in our pipeline to bookings and revenue."
Thursday, March 26, 2009
The Big Four Blog Is On Alltop
Yes, our blog has been selected to be featured on the Accounting topic of Alltop, an aggregator of the top blogs on the internet.
We’re excited to be part of Alltop, along with other related leading blogs on this subject, such as CPA Trendlines, Re:The Auditors, Skeptical CPA, Alex Malley, Deloitte and others.
This inclusion will help direct folks who are interested in Accounting, the Big Four firms, and all related topics to our blog, for them to read all the stuff we talk about and provide comments. We look forward to the added traffic on our site.
Check it out, we are on the bottom right corner…
http://accounting.alltop.com/
For those who are not familiar with Alltop, here is a synopsis in their own words:
“We do this by collecting the headlines of the latest stories from the best sites and blogs that cover a topic. You can think of Alltop as the “online magazine rack” of the web. We’ve subscribed to thousands of sources to provide “aggregation without aggravation.” In a nutshell, Alltop is an information filter to help you find your nuggets of gold.
Q. How do the Alltop sites work? A. We import the stories of the top news websites and blogs for any given topic and display the headlines of the five most recent stories”
You can also customize Alltop to create your own page of the all the blogs that you like in one single point at http://my.alltop.com/. It’s fairly simple and very useful to keep up with the blogosphere.
We’re excited to be part of Alltop, along with other related leading blogs on this subject, such as CPA Trendlines, Re:The Auditors, Skeptical CPA, Alex Malley, Deloitte and others.
This inclusion will help direct folks who are interested in Accounting, the Big Four firms, and all related topics to our blog, for them to read all the stuff we talk about and provide comments. We look forward to the added traffic on our site.
Check it out, we are on the bottom right corner…
http://accounting.alltop.com/
For those who are not familiar with Alltop, here is a synopsis in their own words:
“We do this by collecting the headlines of the latest stories from the best sites and blogs that cover a topic. You can think of Alltop as the “online magazine rack” of the web. We’ve subscribed to thousands of sources to provide “aggregation without aggravation.” In a nutshell, Alltop is an information filter to help you find your nuggets of gold.
Q. How do the Alltop sites work? A. We import the stories of the top news websites and blogs for any given topic and display the headlines of the five most recent stories”
You can also customize Alltop to create your own page of the all the blogs that you like in one single point at http://my.alltop.com/. It’s fairly simple and very useful to keep up with the blogosphere.
Grant Thornton Finds Sobering Outcomes for 2009 Executive Pay
We step beyond the Big Four firms for this blog post, going to the home page of Grant Thornton (GT) for an interesting and very relevant study on executive compensation. This is fresh off the press as it captures sentiment as of February 2009. The findings are quite sobering and the ultimate impact of the slowing economy is being felt where it hurts the most – the executive wallet.
Clearly, all companies have re-thought their compensation structure and programs and made some tough choices on where and how to allocate a smaller pool of dollars. GT surveyed 227 top companies all across the US with the following conclusions:
Base Salary
About 50% of companies are freezing executive base salaries in 2009, and 75% are holding or reducing their 2009 salary budget as compared to 2008. 34% of companies are decreasing 2009 salary budgets while 15% are actually reducing salaries, indicating companies will very selective in giving merit increases in 2009.
Bottom Line: Expect the same pay in 2009, likely more work and responsibility.
Bonus Plan
More than two-thirds companies’ 2008 bonuses have been below targeted levels; and 25% did not pay any bonus at all for 2008. And to compound this further, 2009 bonus budgets will be same or lower than 2008 bonus budgets. And the bar is higher in 2009 than in 2008 to get bonuses
Bottom Line: Annual bonuses are no longer a sure thing
Long-term Incentive Plan
Most companies did not adjust long-term incentive (LTI) grant practices in 2008 but about half are downward adjusting grant values and/or the number of underlying shares granted in 2009.
Bottom Line: Long term incentives look unlikely
Underwater Stock Options
Many companies don’t yet have a plan to deal with underwater stock options, a key issue impacting 2009 executive compensation plans. Owing to the huge fall in stock prices, 75% of public companies have more than 75% of their outstanding stock options underwater. But more than 50% of these companies have put in place or are putting in place a re-pricing or exchange program to fix this, and a number of companies are either making supplemental stock grants or are granting equity incentives other than options.
Bottom Line: Some hope that say $60-floor options may reprice to $6-floor options
Special Retention
25% of companies have already implemented or considering a special retention program; and those with a significant percentage of underwater stock options are more likely to consider a special retention program..
Bottom Line: If options are getting repriced, good chance retention schemes may follow
Obviously, this is a sobering commentary on the state of affairs in US companies and the crackdown on salaries has been recent, rapid and drastic. Executives will have to manage on lower incomes during these challenging times and can hope for the economy to improve before more money flows into the personal balance sheet.
The entire study is available on http://tinyurl.com/cnzdum, and is worth reading.
Clearly, all companies have re-thought their compensation structure and programs and made some tough choices on where and how to allocate a smaller pool of dollars. GT surveyed 227 top companies all across the US with the following conclusions:
Base Salary
About 50% of companies are freezing executive base salaries in 2009, and 75% are holding or reducing their 2009 salary budget as compared to 2008. 34% of companies are decreasing 2009 salary budgets while 15% are actually reducing salaries, indicating companies will very selective in giving merit increases in 2009.
Bottom Line: Expect the same pay in 2009, likely more work and responsibility.
Bonus Plan
More than two-thirds companies’ 2008 bonuses have been below targeted levels; and 25% did not pay any bonus at all for 2008. And to compound this further, 2009 bonus budgets will be same or lower than 2008 bonus budgets. And the bar is higher in 2009 than in 2008 to get bonuses
Bottom Line: Annual bonuses are no longer a sure thing
Long-term Incentive Plan
Most companies did not adjust long-term incentive (LTI) grant practices in 2008 but about half are downward adjusting grant values and/or the number of underlying shares granted in 2009.
Bottom Line: Long term incentives look unlikely
Underwater Stock Options
Many companies don’t yet have a plan to deal with underwater stock options, a key issue impacting 2009 executive compensation plans. Owing to the huge fall in stock prices, 75% of public companies have more than 75% of their outstanding stock options underwater. But more than 50% of these companies have put in place or are putting in place a re-pricing or exchange program to fix this, and a number of companies are either making supplemental stock grants or are granting equity incentives other than options.
Bottom Line: Some hope that say $60-floor options may reprice to $6-floor options
Special Retention
25% of companies have already implemented or considering a special retention program; and those with a significant percentage of underwater stock options are more likely to consider a special retention program..
Bottom Line: If options are getting repriced, good chance retention schemes may follow
Obviously, this is a sobering commentary on the state of affairs in US companies and the crackdown on salaries has been recent, rapid and drastic. Executives will have to manage on lower incomes during these challenging times and can hope for the economy to improve before more money flows into the personal balance sheet.
The entire study is available on http://tinyurl.com/cnzdum, and is worth reading.
Wednesday, March 25, 2009
BearingPoint Breakup Imminent, Business Parts Sold to Multiple Buyers
BearingPoint is very likely to break apart very soon, and sell all its businesses to either other Big4 firms or to local management teams. According the company’s press release on March 23, 2009, all parts of BearingPoint have been sold / in the process of being sold / likely to be sold in different parts to different parties as below:
“BearingPoint and Deloitte have entered into an asset purchase agreement by which Deloitte will purchase a significant portion of BearingPoint’s largest business unit, Public Services, for a price of $350 million, subject to adjustment and customary closing conditions. “
“BearingPoint has signed a non-binding letter of intent to sell a substantial
portion of its North American Commercial Services business, including its Financial Services segment, to PricewaterhouseCoopers LLP for $25 million.”
“PwC Advisory Co., Ltd. (PwC Japan), a PricewaterhouseCoopers firm operating in Japan, is also in advanced negotiations to acquire the Company’s consulting practice in Japan.”
“BearingPoint is in late-stage negotiations with its local management teams to sell its
European and Latin America practices.”
“Further, BearingPoint is in separate negotiations with other parties and local management to sell various Asia Pacific practices, separate from Japan.”
While only the US part of BearingPoint was declared bankrupt with international organization remaining outside bankruptcy, it appears that a total sale of the company including domestic and foreign entities was the only feasible solution.
First, it appears that the big pieces of BearingPoint are “staying within the Big4 family” the key Public Services franchise and North American Commercial Services are being sold to Deloitte and PricewaterhouseCoopers.
Second, the total known sum of sales comes to $375 million plus the amount to be realized by sale of international businesses. The Public Services unit was strong and had good inroads into government consulting project, Deloitte will certainly strengthen its government consulting business. Consider that Public Services had revenues of $1.4 billion in 2007 and gross profits of $263 million, so the sale price is only 1.5X gross profit.
Third, the sum-of-parts valuation turned out to be clearly higher the than trading value of BearingPoint. On the day of announcement, March 23, 2009 late in the day though, the stock moved up to almost 20 cents a share, with market capitalization of 4.4 million shares * 0.2 = 0.8 million, prior to announcement, the stock was trading at 10 cents a share, and today March 25, 2009, it has come back to 9 cents a share.
As we said before, we mourn the passing of one of the Big4 firms, the KPMG Consulting spin-off, but given all the challenges faced by BearingPoint and the precipitous decline in share price and investor confidence, an internal breakup and sale were the only sensible solutions available at this time.
“BearingPoint and Deloitte have entered into an asset purchase agreement by which Deloitte will purchase a significant portion of BearingPoint’s largest business unit, Public Services, for a price of $350 million, subject to adjustment and customary closing conditions. “
“BearingPoint has signed a non-binding letter of intent to sell a substantial
portion of its North American Commercial Services business, including its Financial Services segment, to PricewaterhouseCoopers LLP for $25 million.”
“PwC Advisory Co., Ltd. (PwC Japan), a PricewaterhouseCoopers firm operating in Japan, is also in advanced negotiations to acquire the Company’s consulting practice in Japan.”
“BearingPoint is in late-stage negotiations with its local management teams to sell its
European and Latin America practices.”
“Further, BearingPoint is in separate negotiations with other parties and local management to sell various Asia Pacific practices, separate from Japan.”
While only the US part of BearingPoint was declared bankrupt with international organization remaining outside bankruptcy, it appears that a total sale of the company including domestic and foreign entities was the only feasible solution.
First, it appears that the big pieces of BearingPoint are “staying within the Big4 family” the key Public Services franchise and North American Commercial Services are being sold to Deloitte and PricewaterhouseCoopers.
Second, the total known sum of sales comes to $375 million plus the amount to be realized by sale of international businesses. The Public Services unit was strong and had good inroads into government consulting project, Deloitte will certainly strengthen its government consulting business. Consider that Public Services had revenues of $1.4 billion in 2007 and gross profits of $263 million, so the sale price is only 1.5X gross profit.
Third, the sum-of-parts valuation turned out to be clearly higher the than trading value of BearingPoint. On the day of announcement, March 23, 2009 late in the day though, the stock moved up to almost 20 cents a share, with market capitalization of 4.4 million shares * 0.2 = 0.8 million, prior to announcement, the stock was trading at 10 cents a share, and today March 25, 2009, it has come back to 9 cents a share.
As we said before, we mourn the passing of one of the Big4 firms, the KPMG Consulting spin-off, but given all the challenges faced by BearingPoint and the precipitous decline in share price and investor confidence, an internal breakup and sale were the only sensible solutions available at this time.
Successful Growth At True Partners Consulting In Just 3 Years
March 25, 2009
Three years ago, almost to the day (March 22, 2006), we blogged about True Partners, a a niche tax and advisory consulting firm in Chicago, with 25 Andersen alumni and CEO Cary McMillan, who was head of Andersen’s Chicago office and then CFO of Sara Lee. At that time, the start-up had 25 personnel and offered an alternative to SOX-restricted Big Four firms.
At that time, we also said, “TPC’s performance in the marketplace will bear close watching.”http://bigfouralumni.blogspot.com/2006/03/andersen-alumni-launch-true-partners.html
We were brought again today to True Partners Consulting while researching another completely unrelated topic, and were pleasantly surprised to find terrific growth in personnel, services and recognition over these three years. Clearly, they have established themselves in the marketplace and appear to be doing well despite the current difficult environment in professional services.
Here’s what Crain Chicago says: “With revenue expected to climb as much as 35% this year, to $43 million, Mr. McMillan says the firm will add 50 more professionals to its staff of 225 consultants.”So by the end of 2009, TPC will have 275 professionals, which is a 11x growth from its small beginnings just three years ago, and more than $40 million in sales, up remarkably from a small (but unknown) level in 2006.
TPC was also gained 9th place in Crain’s Chicago’s 20 Best Places to Work, with this testimonial, “…True Partners believes it\'s essential to create opportunities for staffers to interact. So there\'s free beer and wine after 5 p.m. and a big-screen TV, Nintendo Wii game system and pingpong table for quick escapes from the daily grind. True Partners won’t hire anyone who can\'t pass the collegiality test and will not keep anyone on board who doesn't display respect and selflessness toward peers.”
With an expanded set of services:
Tax and Business Consulting
Federal and State Compliance
Private Equity Services
Tax Risk Management
Unclaimed Property
and now at 9 locations in US and Europe, TPC seems to have had a great start and terrific growth. Kudos to Andersen alumni for this success. We’ll come back to see how TPC is doing, hopefully in less than three years from now.
Three years ago, almost to the day (March 22, 2006), we blogged about True Partners, a a niche tax and advisory consulting firm in Chicago, with 25 Andersen alumni and CEO Cary McMillan, who was head of Andersen’s Chicago office and then CFO of Sara Lee. At that time, the start-up had 25 personnel and offered an alternative to SOX-restricted Big Four firms.
At that time, we also said, “TPC’s performance in the marketplace will bear close watching.”http://bigfouralumni.blogspot.com/2006/03/andersen-alumni-launch-true-partners.html
We were brought again today to True Partners Consulting while researching another completely unrelated topic, and were pleasantly surprised to find terrific growth in personnel, services and recognition over these three years. Clearly, they have established themselves in the marketplace and appear to be doing well despite the current difficult environment in professional services.
Here’s what Crain Chicago says: “With revenue expected to climb as much as 35% this year, to $43 million, Mr. McMillan says the firm will add 50 more professionals to its staff of 225 consultants.”So by the end of 2009, TPC will have 275 professionals, which is a 11x growth from its small beginnings just three years ago, and more than $40 million in sales, up remarkably from a small (but unknown) level in 2006.
TPC was also gained 9th place in Crain’s Chicago’s 20 Best Places to Work, with this testimonial, “…True Partners believes it\'s essential to create opportunities for staffers to interact. So there\'s free beer and wine after 5 p.m. and a big-screen TV, Nintendo Wii game system and pingpong table for quick escapes from the daily grind. True Partners won’t hire anyone who can\'t pass the collegiality test and will not keep anyone on board who doesn't display respect and selflessness toward peers.”
With an expanded set of services:
Tax and Business Consulting
Federal and State Compliance
Private Equity Services
Tax Risk Management
Unclaimed Property
and now at 9 locations in US and Europe, TPC seems to have had a great start and terrific growth. Kudos to Andersen alumni for this success. We’ll come back to see how TPC is doing, hopefully in less than three years from now.
Tuesday, March 24, 2009
Tough Q2-2009 Bar for Accenture, but Likely to Match Expectations
Accenture is reporting its Q2-2009 (for the three months from November 2008 to February 2009) results on Thursday March 26, 2009, and the consensus Wall Street analyst estimate for earnings is 62 cents per share compared to year-ago 64 cents per share in Q2-2008, 3% lower. This is the average estimate from 18 analysts who follow the stock and have varying estimates between 58 cents and 67 cents per share.
In terms of revenues, the consensus Wall Street analyst estimate is $5.54 billion compared to year-ago $5.61 B in Q2-2008, 1.2% lower. This is the average estimate from 18 analysts who follow the stock and have varying estimates between $5.40 B and $5.71 B. For the fiscal year 2009, analysts expect Accenture to earn $2.79 per share compared to $2.65 earned in fiscal year 2008, a 5.2% increase.
In terms of the 19 Wall Street analysts rating the company, 5 rate it a Strong Buy, 8 rate it a Buy and 6 rate it a Hold. For example, on October 15, 2008, Argus Research raised its rating from Hold to Buy.
The mean target of 13 analysts for the stock price is $37.56, with a range of $33.00 to $43.50. Currently the stock trades close to $31, which is lower than the bottom of the range, and clearly far below where analysts expects the stock to be at in the short term.
Richard Moroney, editor of Dow Theory Forecasts, appears to be a strong believer in Accenture, and last week, reminded his clients that Accenture is a buy in his opinion, and noted that the company was steadily moving up in rankings in his quantitative numbers-based ranking system called Quadrix. Morningstar also expects Accenture to make the estimate. Even Jim Cramer, the hyper-uber stock analyst at CNBC’s Mad Money likes Accenture at $30.
We believe that Accenture is in a strong position, and very likely to meat or even beat these estimates, despite the tough bar being set by Wall Street. It has a very performance oriented culture, and has been able to successfully avoid the downdraft from the slowing global economy. Revenue shows no signs of slowing as Accenture increases its Consulting and Outsourcing footprint deeper into existing and new clients by providing innovative solutions which reduce operating costs. Moreover, it has a very strong balance sheet with $2.8 billion in cash and only a nominal debt of $1.1 billion. Two additional positive factors - consultant utilization for Q1-2009 was 83% same as Q1-2008 and attrition was 13%, a full 4% below 17% in Q1-2008.
In terms of its own forecasts, Accenture expects Q2-2009 revenues to be $5.45 billion - $5.65 billion, with a negative impact of 8-10% coming from FX and an appreciating US dollar. And the company expects diluted EPS for FY 2009 to be $2.78 - $2.85
Traditionally, the second quarter has the lowest earnings among all four quarters, reflecting the seasonality of the business. But that is not to say that the company may not blow past these earnings consensus. For the quarter Q1-2009 ending November 2008, Accenture’s actual EPS was 74 cents 8.8% higher than consensus of 68 cents. For the last four quarters, the company has been consistently and handily beating analyst consensus EPS estimates.
Accenture reports after the market closes on March 26th, and we are anticipating news which will please investors.
In terms of revenues, the consensus Wall Street analyst estimate is $5.54 billion compared to year-ago $5.61 B in Q2-2008, 1.2% lower. This is the average estimate from 18 analysts who follow the stock and have varying estimates between $5.40 B and $5.71 B. For the fiscal year 2009, analysts expect Accenture to earn $2.79 per share compared to $2.65 earned in fiscal year 2008, a 5.2% increase.
In terms of the 19 Wall Street analysts rating the company, 5 rate it a Strong Buy, 8 rate it a Buy and 6 rate it a Hold. For example, on October 15, 2008, Argus Research raised its rating from Hold to Buy.
The mean target of 13 analysts for the stock price is $37.56, with a range of $33.00 to $43.50. Currently the stock trades close to $31, which is lower than the bottom of the range, and clearly far below where analysts expects the stock to be at in the short term.
Richard Moroney, editor of Dow Theory Forecasts, appears to be a strong believer in Accenture, and last week, reminded his clients that Accenture is a buy in his opinion, and noted that the company was steadily moving up in rankings in his quantitative numbers-based ranking system called Quadrix. Morningstar also expects Accenture to make the estimate. Even Jim Cramer, the hyper-uber stock analyst at CNBC’s Mad Money likes Accenture at $30.
We believe that Accenture is in a strong position, and very likely to meat or even beat these estimates, despite the tough bar being set by Wall Street. It has a very performance oriented culture, and has been able to successfully avoid the downdraft from the slowing global economy. Revenue shows no signs of slowing as Accenture increases its Consulting and Outsourcing footprint deeper into existing and new clients by providing innovative solutions which reduce operating costs. Moreover, it has a very strong balance sheet with $2.8 billion in cash and only a nominal debt of $1.1 billion. Two additional positive factors - consultant utilization for Q1-2009 was 83% same as Q1-2008 and attrition was 13%, a full 4% below 17% in Q1-2008.
In terms of its own forecasts, Accenture expects Q2-2009 revenues to be $5.45 billion - $5.65 billion, with a negative impact of 8-10% coming from FX and an appreciating US dollar. And the company expects diluted EPS for FY 2009 to be $2.78 - $2.85
Traditionally, the second quarter has the lowest earnings among all four quarters, reflecting the seasonality of the business. But that is not to say that the company may not blow past these earnings consensus. For the quarter Q1-2009 ending November 2008, Accenture’s actual EPS was 74 cents 8.8% higher than consensus of 68 cents. For the last four quarters, the company has been consistently and handily beating analyst consensus EPS estimates.
Accenture reports after the market closes on March 26th, and we are anticipating news which will please investors.
Thursday, March 19, 2009
Deloitte’s Employability Initiative Gets New Boost in the UK
Deloitte has been supporting the Employability Initiative since 2001.
In London it called again for major UK employers to “help champion skills training and tackle the chronic shortage of “employability” skills.”
In an event, attended by senior business leaders, government and education providers, and who will join the firm in championing and supporting this type of training for all young people.
Here’s the facts straight from the Deloitte press release:
“Deloitte has an exceptional commitment to the support of education in the workplace, exemplified by its flagship Employability Initiative. Working together with nine regional Deloitte Employability Centres, Deloitte aims to train a total of 800 teachers to deliver employability courses, reaching 40,000 students across the UK, helping them develop the skills, attitudes and behaviours they need to secure and sustain employment. The firm has invested £2.6 million in the initiative to date, with a further £1.2 million planned in 2012. Deloitte’s total commitment to educational projects exceeds £1 million each year.”
But here are some interesting aspects of this effort:
First, it seems ironical and somewhat counter intuitive that while we are in the middle of a global economic turmoil with raging unemployment that college graduates do not have the requisite employability skills to make effective entrances into the business world and immediate contributions to their jobs.
Second, we recently saw PwC and E&Y both start making inroads into the student population. PwC recently launched its “Recession-proof your job search” initiative aimed at undergraduate seniors to help them identify and locate the right jobs for their skills and goals; and E&Y gave as an example $400K to Bentley University to start freshmen on accounting and finance courses and make changes to their curriculum. All these Big4 firm efforts indicate that there is some kind of underlying issue with the quality of personnel entering the workforce and in a selfish way the Big4 firms.
Finally, Sir Mike Rake is Chairman, UK Commission for Employment and Skills, who spoke at this event also supported the Deloitte initiative. But he was, as many may recall, the Chairman of KPMG International from 2002 to 2007, which is creditable firm crossover for an illustrious Big Four alum!
Kudos to Deloitte to jump start this in the UK with major public and private support.
We’ll check around to see what the last Big4 firm KPMG is doing on this front.
In London it called again for major UK employers to “help champion skills training and tackle the chronic shortage of “employability” skills.”
In an event, attended by senior business leaders, government and education providers, and who will join the firm in championing and supporting this type of training for all young people.
Here’s the facts straight from the Deloitte press release:
“Deloitte has an exceptional commitment to the support of education in the workplace, exemplified by its flagship Employability Initiative. Working together with nine regional Deloitte Employability Centres, Deloitte aims to train a total of 800 teachers to deliver employability courses, reaching 40,000 students across the UK, helping them develop the skills, attitudes and behaviours they need to secure and sustain employment. The firm has invested £2.6 million in the initiative to date, with a further £1.2 million planned in 2012. Deloitte’s total commitment to educational projects exceeds £1 million each year.”
But here are some interesting aspects of this effort:
First, it seems ironical and somewhat counter intuitive that while we are in the middle of a global economic turmoil with raging unemployment that college graduates do not have the requisite employability skills to make effective entrances into the business world and immediate contributions to their jobs.
Second, we recently saw PwC and E&Y both start making inroads into the student population. PwC recently launched its “Recession-proof your job search” initiative aimed at undergraduate seniors to help them identify and locate the right jobs for their skills and goals; and E&Y gave as an example $400K to Bentley University to start freshmen on accounting and finance courses and make changes to their curriculum. All these Big4 firm efforts indicate that there is some kind of underlying issue with the quality of personnel entering the workforce and in a selfish way the Big4 firms.
Finally, Sir Mike Rake is Chairman, UK Commission for Employment and Skills, who spoke at this event also supported the Deloitte initiative. But he was, as many may recall, the Chairman of KPMG International from 2002 to 2007, which is creditable firm crossover for an illustrious Big Four alum!
Kudos to Deloitte to jump start this in the UK with major public and private support.
We’ll check around to see what the last Big4 firm KPMG is doing on this front.
Sunday, March 15, 2009
Want to Recession-proof Your Job Search? PwC Shows How-To
We recently came across a very interesting and useful resource PricewaterhouseCoopers has recently provided on its website. It is a free new career toolkit to give college students a competitive advantage in their job search, and has short video vignettes with career tips, a video Q&A for students' career questions and downloadable worksheets for career planning.
This free resource, with sound, objective career advice is aimed at graduating seniors, and underclassmen seeking internships. PwC is actively distributing this to career services offices and faculty at more than 200 U.S. colleges and universities.
Why is PwC doing this?
"PricewaterhouseCoopers is committed to helping college students and recent graduates overcome the obstacles they are facing in the wake of the current recession," said Bob Daugherty, US Partner and Sourcing Leader at PricewaterhouseCooopers. "By educating students and young professionals with sound, objective advice, we hope to boost their chances of realizing their career goals."
The title, “Feed the Future, Recession Proof your Job Search” is intriguing and the content is actually pretty good and useful. These career tools, focused mainly on students in their last year of undergraduate studies, is very relevant for that group, but equally useful and engaging for all other job seekers.
There are a number of pithy videos by Lindsey Pollak who has partnered with PwC to produce these videos. Lindsay (http://www.linkedin.com/in/lindseypollak), best selling author of “Getting from College to Career”, offers focused advice on strategies and tactics to find a job in this difficult recession.
By offering unbiased advice (there are no obvious or subtle pushes toward accounting or even salesy pitches for joining PwC), the firm is positioning itself as a reliable, friendly source for career planning. There’s clearly good publicity for the firm, but also appears to be an underlying desire to genuinely help senior who are facing perhaps the toughest job environment in over 50 years. PwC hired about 3,000 seniors in 2008 and expects to hire that same level in 2009, and these career resources will certainly play its part in attracting the best and the most aggressive/innovative talent to the firm.
The website is hidden deep within PwC.com, but you can find it here:
http://tinyurl.com/9zj5c9
This free resource, with sound, objective career advice is aimed at graduating seniors, and underclassmen seeking internships. PwC is actively distributing this to career services offices and faculty at more than 200 U.S. colleges and universities.
Why is PwC doing this?
"PricewaterhouseCoopers is committed to helping college students and recent graduates overcome the obstacles they are facing in the wake of the current recession," said Bob Daugherty, US Partner and Sourcing Leader at PricewaterhouseCooopers. "By educating students and young professionals with sound, objective advice, we hope to boost their chances of realizing their career goals."
The title, “Feed the Future, Recession Proof your Job Search” is intriguing and the content is actually pretty good and useful. These career tools, focused mainly on students in their last year of undergraduate studies, is very relevant for that group, but equally useful and engaging for all other job seekers.
There are a number of pithy videos by Lindsey Pollak who has partnered with PwC to produce these videos. Lindsay (http://www.linkedin.com/in/lindseypollak), best selling author of “Getting from College to Career”, offers focused advice on strategies and tactics to find a job in this difficult recession.
By offering unbiased advice (there are no obvious or subtle pushes toward accounting or even salesy pitches for joining PwC), the firm is positioning itself as a reliable, friendly source for career planning. There’s clearly good publicity for the firm, but also appears to be an underlying desire to genuinely help senior who are facing perhaps the toughest job environment in over 50 years. PwC hired about 3,000 seniors in 2008 and expects to hire that same level in 2009, and these career resources will certainly play its part in attracting the best and the most aggressive/innovative talent to the firm.
The website is hidden deep within PwC.com, but you can find it here:
http://tinyurl.com/9zj5c9
Monday, March 09, 2009
KPMG Is Number One Best Big Company to Work For in the UK
KPMG is the “Best Big Company to Work For in 2009” in the United Kingdom according to The Sunday Times of the UK. It beats 2nd place Bourne Leisure and 3rd American Express. This is from one of the most respected newspapers in the island and widely quoted list, so kudos to Big Four firm KPMG for securing this top honor.
This is no one-time flash in the pan - KPMG has been ranked in the top 3 for the last three years, and in the top 10 for the last five years. According to the magazine, “It is also the winner of lifetime achievement award for having been in the top 10 Best Companies rankings over the past five years. And its almost 12,000-strong workforce seems to agree with Day’s assessment, according to our 66-point employee questionnaire. The company has top 10 results for 48 questions and 10 of those are the best scores nationally.”
In the same “Best Big Company to Work For in 2009” ranking, PricewaterhouseCoopers is number 7, Deloitte& Touche is number 9 and Accenture is number 12.
PwC is high on communication…”An online PwC UK news channel was launched this year, bringing employees the latest news across the company every morning, including web and podcasts.”
For Deloitte, its the employee who give it a top grade, “Employees are proud to work for the company, earning it an 81% positive score. Confidence in the leadership skills of senior management is high (80%), workers think the organisation is run on strong principles (73%) and are inspired by senior partner and chief executive of the UK operation, John Connolly (69%, a top four score).”
In Accenture’s situation, its personnel believe that their careers are on solid track, “Staff think the experience they gain at work is valuable for their future, earning the firm a 77% positive score in our survey, and say the job is good for personal growth (76%).”
How does The Sunday Times come up with the The Best Companies? The process consists of two elements:
An Employee Survey
Company Questionnaire
At least 90% of the company’s score is from the employee survey and depends on how highly people score the company on eight factors the survey measures. There is a discretionary 10% of company score that can be derived from the Company Questionnaire.
This is no one-time flash in the pan - KPMG has been ranked in the top 3 for the last three years, and in the top 10 for the last five years. According to the magazine, “It is also the winner of lifetime achievement award for having been in the top 10 Best Companies rankings over the past five years. And its almost 12,000-strong workforce seems to agree with Day’s assessment, according to our 66-point employee questionnaire. The company has top 10 results for 48 questions and 10 of those are the best scores nationally.”
In the same “Best Big Company to Work For in 2009” ranking, PricewaterhouseCoopers is number 7, Deloitte& Touche is number 9 and Accenture is number 12.
PwC is high on communication…”An online PwC UK news channel was launched this year, bringing employees the latest news across the company every morning, including web and podcasts.”
For Deloitte, its the employee who give it a top grade, “Employees are proud to work for the company, earning it an 81% positive score. Confidence in the leadership skills of senior management is high (80%), workers think the organisation is run on strong principles (73%) and are inspired by senior partner and chief executive of the UK operation, John Connolly (69%, a top four score).”
In Accenture’s situation, its personnel believe that their careers are on solid track, “Staff think the experience they gain at work is valuable for their future, earning the firm a 77% positive score in our survey, and say the job is good for personal growth (76%).”
How does The Sunday Times come up with the The Best Companies? The process consists of two elements:
An Employee Survey
Company Questionnaire
At least 90% of the company’s score is from the employee survey and depends on how highly people score the company on eight factors the survey measures. There is a discretionary 10% of company score that can be derived from the Company Questionnaire.
Friday, March 06, 2009
GM Defends Viability Plan Against Deloitte Doubts on Going Concern
In the recently issued March 4th financial year 2008 10-K annual SEC filing for General Motors Corporation, Deloitte & Touche, its public auditors surprised everyone by expressing serious doubt about GM’s ability to continue as a going concern in their auditors opinion to GM’s financial statements. Not that the auto industry’s woes are not publicly known, but a definitive statement on “substantial doubts” on a “going concern” are strong words to place in a public document. This can immediately trigger a number of covenants and provisions in bondholder contracts to potentially lead to repayment of principal and eventual bankruptcy. However, GM has been able to negotiate with its lenders to forgive at least this breach of covenants.
Nonetheless, GM’s stock cratered 15% yesterday March 5th on release of the 10-K and Deloitte’s opinion. Which just shows the awesome power that the Big Four firms have over their clients’ market capitalization and perhaps even survival.
So this is what Deloitte said rather crisply in its opinion in the 10-K:
“…The Corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern.”
And this sort of serious doubt by public auditors does generally mean that bankruptcy under Chapter 11 or 7 may be the only option left for GM.
Not so.
Today, Steve Harris, GM’s VP of Corporate Communications refuted this in his FastLane GM Corporate Official Blog http://fastlane.gmblogs.com/:
“Restructuring the business out of court remains the best solution for GM and our constituents. We’ve established a clearly-defined plan to restructure our business and restore GM to long-term viability, and we are aggressively executing that plan through a series of actions we outlined on February 17.
As a prudent business measure, we have analyzed various bankruptcy scenarios, yes. (We were asked to by the government, don’t forget.) However, we firmly believe that an in-court restructuring would carry with it tremendous costs and risks, the most significant being a dramatic deterioration of revenue due to lost sales.
That’s the deal, folks. We haven’t changed our thinking. You analyze every option, but you move ahead with the one you think is best for the company. That’s what we’re doing.”
So, GM continues to believe that its Viability Plan executed out of court and out of bankruptcy is its best option. Deloitte have indeed set off a public relations firestorm for GM, with the corporation doing its best to thwart off negative opinion among the public. With the audit opinion done, Deloitte may have little role to play as the drama goes on between GM, its investors, the Obama Administration and GM’s bondholders.
We’ll continue to track development on some of most storied names in Corporate America.
Nonetheless, GM’s stock cratered 15% yesterday March 5th on release of the 10-K and Deloitte’s opinion. Which just shows the awesome power that the Big Four firms have over their clients’ market capitalization and perhaps even survival.
So this is what Deloitte said rather crisply in its opinion in the 10-K:
“…The Corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern.”
And this sort of serious doubt by public auditors does generally mean that bankruptcy under Chapter 11 or 7 may be the only option left for GM.
Not so.
Today, Steve Harris, GM’s VP of Corporate Communications refuted this in his FastLane GM Corporate Official Blog http://fastlane.gmblogs.com/:
“Restructuring the business out of court remains the best solution for GM and our constituents. We’ve established a clearly-defined plan to restructure our business and restore GM to long-term viability, and we are aggressively executing that plan through a series of actions we outlined on February 17.
As a prudent business measure, we have analyzed various bankruptcy scenarios, yes. (We were asked to by the government, don’t forget.) However, we firmly believe that an in-court restructuring would carry with it tremendous costs and risks, the most significant being a dramatic deterioration of revenue due to lost sales.
That’s the deal, folks. We haven’t changed our thinking. You analyze every option, but you move ahead with the one you think is best for the company. That’s what we’re doing.”
So, GM continues to believe that its Viability Plan executed out of court and out of bankruptcy is its best option. Deloitte have indeed set off a public relations firestorm for GM, with the corporation doing its best to thwart off negative opinion among the public. With the audit opinion done, Deloitte may have little role to play as the drama goes on between GM, its investors, the Obama Administration and GM’s bondholders.
We’ll continue to track development on some of most storied names in Corporate America.
Monday, March 02, 2009
Capgemini Posts 2008 Revenue Growth of 5pp and Increase in Operating Margin
Capgemini recently posted its full year 2008 financial results, creditable performance given the heavy economic global turmoil that has affected every country and industry all over the world.
2008 revenue at EUR 8.7 billion was up 5% on local currency terms versus 2007 revenue, but was flat on Euro terms to the reported 2007 revenue of EUR 8.7 billion, as the Euro and GB Pound had appreciated against the US dollar at least for the first ten months of 2008. Operating profit as a percentage of revenue actually increased from 7.4% in 2007 to 8.5% in 2008, and operating profit in EUR terms increased from 493 million to 586 million. Capgemini decreased somewhat its cash position, holding EUR 774 million of cash at end of 2008 versus EUR 889 million of cash at end of 2007. Consulting and Outsourcing bookings rose to EUR 9.3 billion in 2008, up 4% from 2007.
The board recommended dividends of EUR 1 per share, and with the share at about EUR 21 today (the lowest in 3 years), the dividend yield is a healthy 5%.
By geography, North America local revenues were up 3.4%, with operating margin at 5.8%, slightly down from 2007; Europe and the rest of the world posted like-for-like revenue growth of 11.6%, but there was a slight drop in operating margin (14.2% versus 15.0% in 2007).
By service line, Local professional services (Sogeti Group) had 9.1% revenue growth and 2008 operating margin of 12.9%. Outsourcing recorded sales growth of 4.6%, and operating margin continued to rise, reaching 5.4%. Consulting had revenue growth of 2.4% but strongest margin improvement (12.8% on 10.5% in 2007). Technology services had growth of 4.1% and its operating margin was up by more than a point to 10.2%.
Capgemini actually increased its headcount by 8,113 staff between December 31, 2007 and December 31, 2008, with almost half of new recruitment being carried out in offshore countries, mainly in India, but also in Poland, China, Morocco and South America. Offshore employees were 28% of total Group headcount, accounting for 25,275
people out of a total 91,621 on December 31, 2008
In terms of 2009 outlook, Capgemini remained cautious, saying, “In a climate of high uncertainty, the Group considers that it does not have enough visibility beyond the first half. For the first six months of the year (2009) like-for-like revenues could see a modest decline. This would only have a limited impact on the operating margin, which should remain above 6.5% (operating margin for the first half of 2008 being 7.6%).
These are solid, but not outstanding results as posted by Accenture or the double digit revenue growth reported by the Big4 firms. Nonetheless, revenue growth coupled with operating margin% improvement, growth in bookings and good cash positions were creditable achievements in the face of relentless bad news obviously hitting each and every of Capgemini’s clients. More so, consulting is the first thing that clients dispense with in hard times, so any growth is quite remarkable. It is sobering to see low visibility in 2009, which could prove to be even more challenging than 2008. It forecasts a modest revenue and operating margin% decline, and just if that were to happen, would be something that the company can rest content with in a very tough year.
2008 revenue at EUR 8.7 billion was up 5% on local currency terms versus 2007 revenue, but was flat on Euro terms to the reported 2007 revenue of EUR 8.7 billion, as the Euro and GB Pound had appreciated against the US dollar at least for the first ten months of 2008. Operating profit as a percentage of revenue actually increased from 7.4% in 2007 to 8.5% in 2008, and operating profit in EUR terms increased from 493 million to 586 million. Capgemini decreased somewhat its cash position, holding EUR 774 million of cash at end of 2008 versus EUR 889 million of cash at end of 2007. Consulting and Outsourcing bookings rose to EUR 9.3 billion in 2008, up 4% from 2007.
The board recommended dividends of EUR 1 per share, and with the share at about EUR 21 today (the lowest in 3 years), the dividend yield is a healthy 5%.
By geography, North America local revenues were up 3.4%, with operating margin at 5.8%, slightly down from 2007; Europe and the rest of the world posted like-for-like revenue growth of 11.6%, but there was a slight drop in operating margin (14.2% versus 15.0% in 2007).
By service line, Local professional services (Sogeti Group) had 9.1% revenue growth and 2008 operating margin of 12.9%. Outsourcing recorded sales growth of 4.6%, and operating margin continued to rise, reaching 5.4%. Consulting had revenue growth of 2.4% but strongest margin improvement (12.8% on 10.5% in 2007). Technology services had growth of 4.1% and its operating margin was up by more than a point to 10.2%.
Capgemini actually increased its headcount by 8,113 staff between December 31, 2007 and December 31, 2008, with almost half of new recruitment being carried out in offshore countries, mainly in India, but also in Poland, China, Morocco and South America. Offshore employees were 28% of total Group headcount, accounting for 25,275
people out of a total 91,621 on December 31, 2008
In terms of 2009 outlook, Capgemini remained cautious, saying, “In a climate of high uncertainty, the Group considers that it does not have enough visibility beyond the first half. For the first six months of the year (2009) like-for-like revenues could see a modest decline. This would only have a limited impact on the operating margin, which should remain above 6.5% (operating margin for the first half of 2008 being 7.6%).
These are solid, but not outstanding results as posted by Accenture or the double digit revenue growth reported by the Big4 firms. Nonetheless, revenue growth coupled with operating margin% improvement, growth in bookings and good cash positions were creditable achievements in the face of relentless bad news obviously hitting each and every of Capgemini’s clients. More so, consulting is the first thing that clients dispense with in hard times, so any growth is quite remarkable. It is sobering to see low visibility in 2009, which could prove to be even more challenging than 2008. It forecasts a modest revenue and operating margin% decline, and just if that were to happen, would be something that the company can rest content with in a very tough year.
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