Sopra presents excellent results
IT services player Sopra reported impressive results for its FY08, especially when considering the importance that the financial sector plays in its business. Part of its success can be attributed to its nurturing of key accounts, which helps to secure a continuous and potentially increasing revenue stream. Even so, Sopra observes signs of a market slow down and is keeping a tight watch over its margins.
Sound Growth
Paris-headquartered IT services player Sopra presented a set of excellent results for FY08 last week: revenues increased by 12.8% to €1.1 billion, growing organically at a rate of 10.5%. Operating profits were up 10.7% at €99.7 million, producing an operating margin of 8.8% compared to 8.9% the previous year. Sopra’s main growth drivers were French system integration unit SSI France, growing at 14.2%, and its application integration subsidiary Axway with 9.4%, followed by its European system integration division SSI Europe with 2.6% and its management consulting arm Orga at 2.1%.
Long-established business relationships are the bread and butter
Sopra is strongly focusing on its large accounts, which are a main pillar of its business. In 2008, it generated about 30% of overall business with its ten largest clients with whom Sopra has proven, often long-standing, working relationships (as in the case of EADS). Perhaps unsurprisingly, Sopra found that in times of economic slowdown, it has been easier to win additional business from them rather than new accounts. This is a common theme; T-Systems, for example, has also recently stated that its team dedicated to the winning of large deals has had a similar experience over the last few months. As for 2009, Sopra’s CEO Pascal Pasquier will keep targeting key accounts to increase the company’s share of wallet with existing clients globally.
Among Sopra’s top-ten clients are well-known France-headquartered players; its largest client is EADS, with France Telecom second. These relationships have helped Sopra to create a strong position in the French market, where it generated 71% of its revenues in 2008, followed by the rest of Europe with 24% and the Americas/Asia with 5%.
Not entirely immune to slowdown
Sopra’s good results are even more astonishing if one considers that 30% of its revenues were derived from the banking and insurance sector. Even in 2009, Sopra sees good growth opportunities due to regulatory compliance and deregulation, industry consolidation (requiring the rationalisation of information systems), and competitive pressure, which leads companies to engage in transformation projects to improve competitiveness and innovation. As such, Sopra has seen a surge in the demand for application outsourcing and observed, for the first time, an eagerness of clients to enter into long-term client-supplier relationships, especially in the banking sector. In terms of business activities, application outsourcing was Sopra’s largest revenue earner at 29%.
However, not even Sopra has been entirely spared the effects of the economic slowdown: its fourth-quarter growth rate of 11% was slightly below that of the three preceding quarters. Its management consulting business was hit hardest and suffered from “steeply declining” utilisation rates in the last quarter, explained Pierre Pasquier, resulting in a halving of Orga’s margin from 10.3% in FY07 to 5.1% in 2008.
Although Sopra’s main geographic focus is France, where it grew at about 20%, its business has been more affected in other regions, especially the UK, where growth was ‘only’ 2% due to project cancellations in the banking sector. In Spain, on the other hand, where the IT services market has contracted, Sopra managed to gain market share and reported a revenue growth rate of 8.7%, which it attributes to its very profitable Spanish operation.
Like other IT services players, Sopra hasn’t issued guidance for the year due to the unforeseeable depth and length of the economic downturn. Sopra remains optimistic that there will be some growth in France, but foresees more difficulties ahead in its other European markets (Italy, Benelux, Spain, Switzerland and the UK). And like many of its competitors, it will be closely watching its margin – albeit with the knowledge that its current margin of 8.8% gives it a more comfortable starting position than some of its combatants.
Source : Ovum