Devoteam BUY, TP 23.33 (upside +23.4%)

8th of June 2011 Market data Stock price (closing 06/05/2011) 18,90 Shares nb diluted 10,7 Market value (mls) 202,5 Net Debt adjusted 15,8 EV (mls) 218,3 ISIN Market Mnemo Analyst Devoteam BUY, TP 23.33 (upside +23.4%) FR0000073793 Euronext - B DVT Pierre Schang pierre@nfinance.fr 01-53-05-92-87 2010 2011e 2012e 2013e Revenues 495,0 531,2 546,5 561,4 %growth 7,7% 7,3% 2,9% 2,7% EBIT 26,2 26,7 30,3 34,5 %margin 5,3% 5,0% 5,5% 6,1% Net profit 14,3 15,8 18,4 21,1 %margin 2,9% 3,0% 3,4% 3,8% 2010 2011e 2012e 2013e EV/Sales 0,44 0,41 0,34 0,29 EV/EBIT 8,3 8,2 6,1 4,8 PE 14,1 12,8 11,0 9,6 Dividend 0.50 per share (Yield 2.6%) paid the 27/05/2011 Calendar: 30 th of August 2011: H1 results Holdings: Management 21.6% Tabag 6.1% Fidelity 5.2% Natixis AM 4.8% Lazard Freres Gestion 4.6% Oddo AM 3.6% Auto-control 4.7% Public 49.4% Devoteam is a French IT consulting company established in 1995, with operations in 24 countries in Europe, Middle East and Africa, and with over 4700 employees. It has benefited at the beginning from the telecom industry deregulation and the ramp up of internet applications in corporate structures. Step by step the group enlarged its offer toward consulting in information systems. Group s activity is split between 2 business lines: Technology Consulting (83% of overall turnover) and Business Consulting (17% of sales). Since the start Devoteam has experienced strong growth combining organic development as well as M&A operations. 2008 has been a benchmark year with an increasing topline up 24.2% and a 8.6% EBIT margin before exceptional items. 2009 and 2010 were difficult years due to the economic crisis and declining market price and utilization rates. Latest press release commentary Q1 sales were up +15.0% (+6.2%org) at 133.8M lifted up by 1) Business consulting division up +23.9% (+9.2%org) at 23.3M thanks to better economic conditions in Middle-East and in Denmark and favorable seasonality effect and 2) international sales up +18% (+7.8%org) at 73.8M. Group s organic growth was strong despite the drop of a trading activity in Turkey which had a -2M negative impact on the group s turnover. The workforce reached 4734 employees up +70. EBIT reached 6.2M (4.6% of sales) vs 6.2M (5.3% of sales) because of -0.8M negative impact from the Wola Info acquisition. Retreated from this operation, EBIT margin reached 5.2%. in 2011, the management targets 530M of sales up +7% and the return to a positive EBIT margin in the Wola Info perimeter. Triggers For the next 12 months we identify the following triggers: - Return to normative level of the Wola Info EBIT margin vs net profit at -15% of turnover in 2010 and -0.8M EBITDA during the Q1 11. - Stabilizing/increasing market prices and utilization rates thanks to more visibility and better economic conditions. - Positive news flow thanks to M&A operations announcement - Business expansion to emerging countries Devoteam is covered by NFinance since the 8 th of June 2011. Valuation We initiate Devoteam with a Buy rating and a 12 months target price at (50% DCF WACC % terminal growth rate +1.5%, 25% Peers, 25% Historical ratios ). We estimate that the Wola Info acquisition will have a negative impact on group s margin in 2011 and will positively contribute to Devoteam profitability in 2012 thanks to restructuration and better economic conditions. 1

Summary Group presentation..p3 Group story... p5 Summary...p6 Latest press release.....p6 Investment highlights.....p6 Risks...... p7 Valuation.. p8 Historical ratios.... p8 Peers comparison.... p8 Discounted cash flows model.... p9 Outlook....p9 Financial overview....p9 Income statement.....p9 Balance Sheet.......p10 Cash Flows.. p11 2

Group presentation Devoteam is a French IT consulting company established in 1995, with operations in 24 countries in Europe, Middle East and Africa, and with over 4700 employees. Summary Source: company reports. Devoteam is a French IT consulting company with a 15-year history and over 4700 employees. Almost half of the company s revenues (45%) come from France, with the rest coming mostly from other European countries. The company has more than doubled its revenues over the past 5 years from 199 million in 2005 to 495 million in 2010, through organic development and M&A operations. Devoteam now operates in a mature market in occidental countries while growth reservoir is in emerging areas such as Eastern Europe/Balkans, Middle East, Asia etc. (currently non-european markets account for a mere 6% of revenues). At the same time, Devoteam remains a good cash generator, allowing the company to finance acquisitions without issuing debt or equity, keeping dilution low and leverage manageable. The company has strong operational know how and a strong expertise in M&A operations. We estimate Devoteam will use this strengths to profit from market growth and consolidation trend in its industry. The group is positioned as a multi-specialist of information and communication technologies, middleware and telecommunication networks. Devoteam helps clients to : Guarantee the performance of information system: infrastructure optimization, services to users improvement. Improve applications value added: Devoteam optimizes the potential of existing apllications and develops new ones by developing the information systems through Internet and plugging application to each other. Master infrastructure complexity: choice of technologies, computer production profitability and quality 3

The group offers to its clients a know how of all the project life cycle from the design and the implementation to the back up and the securitization. Devoteam s expertise is in networks, telecom, security and system infrastructures. Group s activity is split in two segments: 1. Technology consulting (83% of total revenues) is carried out primarily under the brand DEVOTEAM Solutions and has more than 3,000 consultants in three areas: Expertise, Systems integration and Outsourcing (DVO and DVS brands). DEVOTEAM Solutions has signed partnerships with major software publishers, the main ones being BMC, HP, IBM, Microsoft, CA, EMC, Citrix, VMWare and Avocent 2. Business Consulting activity is carried out primarily under the brand DEVOTEAM Consulting and has over 500 consultants. This business line provides solutions from IT consulting to organisational consulting. Group s services range covers 4 major offers: a) Function processes (strategy and innovation, restructuration, risk and security management) b) Technological, information and communication infrastructures (IT service management, servers, storage systems, computers, networks) 4

c) Information and governance systems (information management, business intelligence, governance) d) Telecom (core networks, IP services and applications) Devoteam has over 700 customers, including 80% of the Euronext 50 companies. Customers are spread among various sectors, although Telecoms are the most significant sector: Telecoms 32% Financial institutions 18% Industry and services 37% Public sector 12%. Group story 1995: Creation of DEVOTEAM as a telecom and enterprise networks services company. 1997: Launch of the Permanent University and an offer of architecture and control of SI. 1998: Opening of regional offices; launch of e-business Architecture offer. 1999: IPO; development in Belgium. 2000: Offices in Spain, Netherlands and United Kingdom. 2001: Providing SI security consulting and acquisition of XP Conseil. 2002: Acquisition of Siticom, a European telecom & networks consulting group. 2003: Reorganization of DEVOTEAM into 2 divisions: Consulting and Solutions. 2004: Start of Middle East activities. 2005: Devoteam won a significant contract with Pierre Fabre and launched the Devoteam Outsourcing activity (DVO). 2006: International development (Scandinavia, Benelux, Morocco); issuance of OBSAR. 5

2007: Acquisition of ausystems and outsourcing of a development center for Nokia Siemens Networks in Belgium. 2008: Development of emerging markets with the launch of new activities in North Africa and acquisitions in Turkey and Russia. 2009: Presence in Germany with the acquisition of Danet. 2010: Acquisition of Wola Info in Poland. 2011: Acquisition of Acane Consulting Investment Highlights Return to normative margins in the Wola Info perimeter. In 2010, Wola Info s net profit was negative at -3.4M. During Q1 11 Wola Info s EBITDA was -0.8M. In 2011, the management estimates that the Wola info perimeter will be breakeven. This will give very positive base effect during the H1 12. Stabilizing/increasing market prices and higher utilization rates In 2010 average consultant daily prices were stabilizing and staid low. According to the 2010 Pierre Audoin Consultants study, all conditions are gathered for a revaluation of consultant daily prices in 2011. In this study a poll proves that a higher number of stakeholders anticipate higher daily prices in 2011: Source : 2010 Pierre Audoin Consultants study Better market visibility thanks to improving economic conditions will enable the group to increase utilization rates. 6

Growth reservoir in emerging countries France is a mature market where upsides are on margins through M&A strategies and build up synergies instead of on toline. Emerging countries have strong organic growth potential. Devoteam s strategy is to develop business abroad thanks to M&A operations especially in Asia, Middle Eats and Eastern Europe. This is what the management has done through Wola Info acquisitions last year. Moreover margins are structurally higher in emerging countries than in France lifting up group s overall profitability with the international expansion. Favorable net debt position for M&A operations Devoteam s management has strong know how in M&A strategies and strong track record. The group profits from a favorable balance sheet position with a gearing of only 12% in 2010. Topline GAGR through build up operations has been around +11.5% over the last 5 years. The management will now invest on high potential markets as well as in emerging countries looking for companies with acceptable valuation. Investment Risks Customer concentration According to Devoteam, top 10 customers accounted for 31% of the company s revenues in Q1-2011, of which top 3 accounted for 11%. Although the top 3 concentration has declined from 14% since Q1-2010, it remains significant, as loss of a single customer in the top list can materially affect revenues. Negative impact on prices from offshoring trend Offshoring trend puts downside pressure on prices. There is a material risk that this trend accelerates and that occidental firms can t cope with this situation by adding more value to their services. Difficulties in the telecom and financial industries Devoteam is highly exposed to Telecom and Financial industries (50% of overall turnover in 2010). There is a risk that these markets slow down for economic reasons and have negative impact on Devoteam s activity as seen during the last economic crisis in 2009 and 2010. Risks related to acquisitions There is an inherent risk for all companies having build up strategies: execution risk. So far Devoteam has realized small size acquisitions and has a god track record in integrating acquired businesses. Valuation We use 3 methods (Discounted cash flows, Peer comparison and Historical ratios) to value Devoteam. We get a target price of 23.33 per share: Methods Weight Stock price DCF 50% 24,28 Peers 25% 21,83 Historical ratios 25% 22,93 Average 23,33 7

HISTORICAL RATIOS: We calculate a median of the Devoteam historical ratios between 2008 and 2010 and apply it to the 2011 numbers. It implies a stock price at 22.93 per share. Historical ratios 2008/2010 Corresponding stock price EV/Sales 0,49 22,93 EV/EBITDA 7,6 26,11 EV/EBIT 9,0 26,47 PE 12,1 22,43 P/BV 1,40 20,06 Mediane 22,93 PEERS COMPARISON We use 8 peers and 4 multiples to calculate a stock price at 21.83 /share: 1) Taking the EV/Sales median multiple we get a stock price at 24.81. 2) The EV/EBITDA peers multiple let us calculate a Devoteam stock price at 27.15. 3) Taking the median PE of the peers we have calculated a stock price at 18.81 a share. 4) If we consider the median peers P/BV ratio, we have a stock price at 18.85 Peers EV/Sales EV/EBIDTA PE P/BV Logica PLC 0,63 7,5 9,4 1,11 Atos Origin SA 0,34 6,5 9,9 1,73 Ordina 0,46 23,8 10,3 0,98 Sopra Group SA 0,76 7,9 11,0 2,60 Cap Gemini SA 0,59 8,7 12,7 1,41 Gfi Informatique SA 0,44 7,3 8,1 1,22 Neurones SA 0,53 5,2 12,9 1,84 Groupe Steria SCA 0,42 5,7 8,5 0,87 Mediane 0,50 7,40 10,12 1,32 DISCOUNTED CASH FLOWS: Based on this DCF, we get a stock price at 24.28 per share (WACC 10.3%, terminal growth rate +1.5%). 2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e Revenues 495,0 531,4 551,8 572,9 593,6 614,6 616,1 629,1 657,7 672,9 687,1 698,8 revenue growth % 7,7% 7,4% 3,8% 3,8% 3,6% 3,5% 0,3% 2,1% 4,5% 2,3% 2,1% 1,7% EBIT 26,2 33,4 37,2 40,8 38,9 41,0 28,9 26,2 36,0 36,4 36,6 36,2 margin % 5,3% 6,3% 6,7% 7,1% 6,6% 6,7% 4,7% 4,2% 5,5% 5,4% 5,3% 5,2% Dep & Amort 4,4 5,5 5,5 5,5 5,5 5,6 5,7 5,8 5,9 6,1 6,3 6,5 WCR change -4,2-4,0-2,2-2,3-2,3-2,3-0,2-1,4-3,1-1,7-1,6-1,3 CapEx -4,8-5,0-5,3-5,5-5,8-6,1-6,4-6,7-7,0-7,4-7,8-8,2 Free Cash Flow (FCF) 8,6 18,2 22,6 24,9 23,8 25,2 19,4 16,4 21,3 23,2 23,5 23,5 Discounted cash flow 18,2 20,5 20,5 17,8 17,1 11,9 9,1 10,7 10,6 9,7 8,8 Discounted terminal value 102,4 8

Financial overview Income Statement Devoteam has experienced strong sales growth over the last 5 years (CAGR +20.0%) from 199M in 2005 to 495M in 2010. This performance has been realized through organic growth (CAGR +8.5%) and build up strategy (CAGR +11.5%). 2006 2007 2008 2009 2010 Sales 266,7 369,9 459,5 459,5 495,0 %change 34,2% 38,7% 24,2% 0,0% 7,7% - of which organic 234,6 312,0 432,8 427,3 459,5 %change 18,0% 17,0% 17,0% -7,0% 0,0% - of which acquisitions 32,1 57,9 26,7 32,2 35,4 Main M&A operations over the last 5 years Year Company Country Sales Profitability Consultants nb Price in M EV/Sales 2011 Acane Consulting Luxembourg 30 2010 Wola Info Poland 22,8 Net profit -15% of sales 200 5,2 0,23 2010 Tieto France 20,0 120 2010 Fornebu Norway 28 2009 Danet Germany 45,0 400 17 0,38 2008 Turing SMI UK 2008 Teligent Russia 2007 AuSystems Europe 50,0 500 2006 Quaint Sweden 6,3 EBIT margin 12% 50 2006 Guidance Benelux 13,0 EBIT margin excluding exceptional items reached a top point at 8.6% in 2008 thanks to 1) higher utilization rates of consultants, 2) strict control of external charges and 3) strong topline growth up +24.2% (+17.0%org). In 2009 and 2010, the group was penalized by economic crisis with no organic growth (-7%org in 2009, flat org in 21010) but continued build up operations with Danet, Tieto, Fornebu and Wola Info. Over this period, EBIT margins have been put under pressure because of 1) difficult economic conditions with decreasing market prices 2) increasing use of sub-contractors 3) higher salaries to consultants 4) restructuration charges due to acquisitions and 5) lower utilization rates. 9

Source: company reports and press releases, analyst calculations. Key income statement indicators: millions 2006 2007 2008 2009 2010 H1-09 H2-09 H1-10 H2-10 Revenue 267 370 459 460 495 228 231 240 255 Yoy growth 34% 39% 24% 0% 8% 0% 0% 5% 10% EBIT 21 29 33 20 26 11 9 13 14 Net income 15 19 19 11 14 6 5 7 7 Diluted EPS, 1.50 1.88 1.88 1.07 1.39 0.58 0.49 0.70 0.69 Yoy change 23% 25% 0% -43% 30% -46% -40% 21% 41% EBIT margin 7.8% 7.9% 7.1% 4.4% 5.3% 4.8% 4.0% 5.3% 5.3% Yoy change 0.8 pp 0.1 pp -0.8 pp -2.7 pp 0.9 pp -3.2 pp -2.2 pp 0.4 pp 1.3 pp Net margin 5.8% 5.3% 4.2% 2.4% 2.9% 2.6% 2.2% 3.0% 2.8% Yoy change -0.4 pp -0.5 pp -1.1 pp -1.8 pp 0.5 pp -2.3 pp -1.3 pp 0.5 pp 0.6 pp Source: company reports, analyst calculations. Balance Sheet Devoteam s balance sheet is dominated by receivables and goodwill on the asset side (43% and 23% of total assets, respectively). Equity finances a third of total assets, while the largest liability is tax and social security liabilities, which total 22% of assets. Loans and borrowings fund just 14% of assets. Cash position is at a comfortable level. Devoteam reports that its cash at the end of Q1-2011 was 51 million 16 million higher than at the start of the quarter and slightly exceeding the company s debt. Key balance sheet indicators: millions 2009 2010 Goodwill 80.8 85.1 Other intangible assets 5.0 5.5 Tangible assets 9.4 15.5 Other non-current assets 5.0 7.4 Receivables 159.6 170.4 Cash 68.0 34.2 Other current assets 36.6 42.4 Total assets 364.4 360.5 Loans and borrowings 62.1 50.1 Payables 118.6 123.8 Other current liabilities 34.9 34.5 Other liabilities 21.9 18.8 Equity 126.7 133.3 Source: company reports. 10

Cash Flows Devoteam s operations show good cash generation capacity. Only 2007 saw a net cash outflow from operations, which was caused by unfavorable working capital movements, which were largely reversed in 2008 and 2009. Solid cash flows have allowed Devoteam to perform acquisitions, although most of CFI outflows are represented by purchases of financial assets. Financing cash flows are mostly insignificant, except for 2006 and 2010, which reflect proceeds from borrowings and their repayments, as well as 10 million spent in 2010 on share repurchase and dividends ( 6 and 4 million, respectively). Key cash flow indicators: millions 2006 2007 2008 2009 2010 CFO 17.3-16.5 50.7 18.2 13.4 CFI -59.5 31.8-24.7-33.9-16.2 CFF 53.4-3.0-4.0-0.9-33.0 Net cash flow 11.2 12.1 20.5-15.5-35.2 Source: company reports. 11

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