Cap Gemini Ernst & Young Group
2002 final audited results:
A better second half in a difficult year

Paris, February 27, 2003

2002 key figures

The Board of Directors of Cap Gemini S.A., which met under the Chairmanship of Serge Kampf in Paris on February 26, 2003, reviewed the 2002 final and audited consolidated financial statements of the Cap Gemini Ernst & Young Group.

• 2002 Group consolidated revenue is 7,047 million euros showing a 13.9% decrease at constant exchange rates and perimeter compared to 2001 and a 16.3% decrease at current exchange rates and perimeter.
  
• Operating income is 114 million euros, that is 1.6% operating margin, showing a significant improvement between the first half-year (0.3%) and the second half-year (3.1%).
  
• Other revenue and expenses (net) amount to 401 million euros versus 139 million euros in 2001. These especially include 463 million euros of restructuring costs showing a faster than expected implementation of the cost reduction measures, of which 359 million are directly related to the 5,855 redundancies decided in 2002 and 104 million to the office space rationalization program. The positive impact of the discounting effect on long-term deferred tax assets, for up to 102 million euros, should also be noted.
  
• The tax income amounts to 108 million euros and includes in particular:
  - the write-down of deferred tax assets for 427 million euros and, more specifically, (i) of the deferred tax asset recognized in the United States upon the acquisition of Ernst & Young’s North American consulting businesses, and secondly, and (ii) of those relating to the tax loss carry-overs booked in the United States prior to this transaction;
  - the recognition for 387 million euros of a tax benefit generated in France in 2002, as a result of the reorganization of the Group’s North American operations.
  
• Goodwill amortization and write-down of market share amount to 123 million euros versus 31 million in 2001 ; this includes 81 million euros of exceptional write-down of market share of the Group’s telecom business in the United States, already recorded in the June 30, 2002 financial statements.
  
• The Group’s net income is – 514 million euros.
  
• The net cash position amounts to 465 million euros on December 31, 2002 compared to 247 million euros on June 30, 2002 and 698 million on December 31, 2001. This decrease of 233 million euros for the fiscal year can largely be explained as follows:
  - a positive operating cash flow of 71 million euros, namely due to good performance in cash collection over the second half which helped improve working capital by 185 million euros (80 days of receivables on December 31, 2002 compared to 90 days on December 31, 2001);
  - a negative cash flow from investments of 251 million euros;
  - the payment of 50 million euros of dividends related to 2001.

As regards the December 31, 2002 Cap Gemini S.A. statutory financial statements, given the evolution of sector valuations and market conditions, a write-down for 4,706 million euros – with no impact on Group consolidated financial statements – was recorded in the value of consolidated subsidiaries’ stakes. The book value of investments in Group subsidiaries was therefore reduced from 11.2 to 6.5 billion euros. As a result, Cap Gemini S.A. shareholders’ equity amounts to 7,222 millions euros compared to 11,415 million euros last year.

2002 highlights and outlook

2002 did not witness the recovery in demand predicted by many market specialists at the beginning of the year for the second half and the Group’s 2002 revenue has continued to reflect the difficult market conditions (with second half revenue for 2002 down 7.8% at constant structure and exchange rates compared to the first half).

Outsourcing now represents 27% of Group revenue versus 21% in 2001, while Consulting and Systems Integration represent 73% of revenue (79% in 2001). The Group has significantly strengthened its leading market position over the year in software package implementation (Enterprise Resource Planning, Customer Relationship Management, Supply Chain Management).

A breakdown by sector shows a rebalance of our client portfolio towards the Health and Public Services sectors (26% of 2002 revenue compared to 16% in 2001) – the Group enjoys a leadership position in the Health sector in the United States – and towards Life Sciences (7% in 2002 compared to 6% in 2001), with lower exposure to Telecom (13% in 2002 compared to 18% in 2001) and to Financial Services (15% in 2002 compared to 17% in 2001).

In this context, the Group’s management decided last June to launch a 3-year strategy transformation program called LEAP! centering around the following initiatives:

- the reorganization of the Group’s business around four disciplines (Consulting, Technology, Outsourcing and Local Professional Services);
- the simplification and streamlining of operating structures;
- the launch of new sales channels and of sales initiatives targeted at the fastest-growing market segments;
- the acceleration of the industrialization of its delivery capacity.

Through this program, the Group is pursuing two main objectives: firstly, to progressively deliver a satisfactory operating margin by streamlining its cost structure, and secondly to set up a more flexible, more responsive and more competitive business organization, both in terms of sales efficiency and delivery capacity.

The initial impact of the headcount reduction measures and of the efforts to reduce non-people related operating costs (procurement centralization, rationalization of support functions and office space) led to an improved second-half operating margin of 3.1% versus 0.3% in the first half, thus showing a first step towards improved profitability targeted by Group management. Due to the combined effect of redundancies and partial replacement of voluntary departures during the year, Group headcount is 52,683 on December 31, 2002 compared to 57,760 on December 31, 2001 (- 5,077).

Finally, the Group is ending the year with a net cash position of 465 millions euros, which reflects strict cash collection management and a sound financial structure.

It is therefore a more competitive group that enters 2003, prepared for a slight revenue decrease in the first half of 2003 compared to the second half of 2002, and expecting a stabilization of its activity over the second half of the year.

To improve the Group’s market positioning and profitability in 2003, the management is focused on the following priorities for the year ahead : pursue its efforts towards a more balanced sector/offerings portfolio, improve front-end efficiency, increase productivity through a more systematic and better coordinated use of its network of development centers across the world and, lastly, continue streamlining the cost structure.

In such a context, given the improvement of operating margin during the second half of 2002 and the pace of the restructuring measures implementation, the Group maintains the ambition expressed last June to bring its operating margin to around 5% in 2003.

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