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Author: Cornelia Wels-Maug
German software and services house IDS Scheer yesterday announced its preliminary Q3 figures. Revenues were up 5% at approximately €80.3m, while EBITA decreased from €8.3m to €4.2m, with an EBITA margin of 5.2% compared to 10.9% in Q3 2005.
Scheer's product business grew 14% to €23.3m, with an EBITA margin of 15.1%, down ten percentage points compared to Q3 2005. Consulting revenues were up 1% at €57m.
Germany remains the single strongest market with revenues up 8% at €41.8m (before segment consolidation) and an EBITA margin of 14.8%. Consulting demand was strong in Germany, and Scheer hired an additional 100 consultants there. International revenues were up 4% at €48.4m (before segment consolidation), with EBITA of -€2.4m; losses were particularly pronounced in the US and China.
IDS Scheer lowered its overall guidance for 2006 by forecasting a revenue increase of 8% (previously 10% to 11%) and EBITA margin of 9% to 10% (previously 11.1% to 11.6%).
Comment: This is the second consecutive quarter in which Scheer has adjusted its 2006 guidance: after a buoyant Q2 (see EuroView Daily Comment, 16 August) the prognosis was lifted upwards, but the weaker Q3 forced a downward revision.
New licence revenues suffered slightly from deals delayed into Q4. However, Scheer's strong pipeline and the fact that many of the postponed deals have already been closed should make this revenue drop a short-lived incident.
However, things are different at Scheer's consulting business, where several additional consultants had to be brought onto fixed-price projects to get them back on track, taking an enormous toll on Scheer's profitability. To remedy this and to ensure the realization of its ambitious mid-term goals, CEO Thomas Volk wants to run products and consulting as separate entities, whilst focusing jointly on the global market for business process management (BPM).
In view of losses on the consulting side, it makes sense for Scheer to implement its successful risk assessment platform, so far only used in Germany, globally. In addition, to enhance its portfolio, Scheer wants to develop new consulting practices, possibly via acquisitions. Given the strength of the consulting market at present, this seems a good strategy. On the product side, Scheer will gain access to new sales channels by partnering with system integrators and consulting companies, although it must manage potential channel conflict here. Overall, it seems that Volk is tackling the challenges well.
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