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Market trends

The worldwide market for strategic consultancy service contracted further in 2003, especially in the second half. Southern Europe was the worst affected region.

Growth segments for the Solving group were business in Brazil and with the banking and insurance sector, as well as its World Class Manufacturing practice. Recurrent business with core clients also helped to counter contraction, accounting for 50% of total revenues. The action taken to maintain business momentum thus held the decline in revenues to 1.7% at constant exchange rates.

Encouragingly, the telecoms sector showed signs of recovering at the end of the year.

Growth initiatives

Throughout the year, new initiatives were taken to back business development and were consolidated by stages.

New offerings covered broad areas including “Performance Alignment”, “Growth Booster” and “Sustainable Development”, as well as specialized services in banking and consumer goods. They began to yield rewards towards the end of the year.

Synergies with Efeso were developed in all countries, leading to shared ties with ten clients compared with only three in 2002.

Special emphasis was placed on some sectors in particular countries:

In view of these successes, targeted initiatives of this kind will continue in 2004.

More broadly, business development was the object of concerted action in all countries, with a total of 45 new clients booked, including three of the world's largest businesses.

With the realignment of first-line staff performances, revenues per vice president were close to the best in the profession.

Continuing commitment to vigorous cost reduction

In response to further market contraction, the Management Board stepped up the cost-cutting drive initiated in 2002. Staff numbers within the scope of consolidation fell from a total of 349 at the end of 2002 to 252 at the end of 2003. Where necessary, outside providers were called in to meet temporary needs.

Administration was restructured, with operations brought on single sites in Sweden and Italy, while Efeso and Solving offices were merged in a number of countries. Combined with vigorous measures in other areas, this cut operating costs by 6.4%, nearly matching the 6.6% decline in revenues to hold margin above 10%. The changes also mean that Solving now benefits from greater flexibility to deal with variations in demand.

Adjustments to cost structures were made with due regard for the need to preserve motivation and were associated with information campaigns and provisions for the involvement of all staff members.

Teams in each area of practice were asked to respond to difficult market conditions with extended offerings and principals played a more active role in promotion.

Scope of consolidation

The only change concerned the UK, where the group had majority interests in three companies at the beginning of the year: the Manchester office, a second representing Efeso's business and the London office, incorporated under the name Solving AEM Ltd.

While the first two show promise, Solving AEM Ltd has been struggling and Solving reduced its interest to 19%.

Breakdown of revenues

Business was spread across more sectors in 2003 than in 2002 reflecting more broadly targeted business promotion.

The sector breakdown has clearly been an important reason for the resilience of our revenues since the beginning of the market downturn. Growth in the financial sector, combined with steady trends in consumer goods and the public sector, thus limited the impact of declines in industry.

Business in the private sector is mainly with large companies, while in the public sector it is with the central government in the UK and city councils in Sweden.

Corporate governance

The development of clearly defined corporate governance rules continued during the year. The Chairman's report on internal controls is appended.

Powers delegated to subsidiaries have been precised and in some cases reduced.

Management reports are now established within a framework common to all subsidiaries.

Rise in free cash flow and decline in debt

At December 31, 2003 equity stood at €16.4 million and net debt at €7.6 million, or 46% of equity compared with 52% at the end of 2002.

Our group aims to further reduce debt and related interest expense.

Free cash flow* rose from €2.8 million in 2002 to €6.9 million in 2003.

* EBITDA less tax, change in working capital requirement and net investments