Prime�s TOP-20 is the proprietary ranking of the leading Baltic IT service companies by their revenues from in-house developed IT services and does not include any sales of hardware, distribution of software other than developed in-house, office equipment or other products. The ranking has been compiled since 2001.

Baltic IT companies accelerate

Prime�s TOP-20 IT services companies continued to benefit from the overall Baltic economy growth. The total increase in annual IT service revenue of Prime�s TOP-20 companies (except Lattelecom Group) exceeded 30% for the first time making Y2006 one of the most successful years ever for the Baltic IT industry. IT service revenue growth rates have now been consistently increasing for 3 years and the demand for IT services remains very strong in 2007.
Same as in the previous year, IT services revenue grew faster than the overall IT sales revenue. In 2006 the share of IT services revenue made up 49% of the total revenue, an increase by almost 10% compared to 2005. This continuing trend verifies the tendency identified in the previous reports that the sector becomes more services oriented.

Growth drivers are the same in all Baltic region

All three Baltic countries share similar market growth drivers. IT companies grew mostly on the back of large government projects financed by the EU and Shengen funds. At the same time private sector demand has also been positively affected by strengthening economy, inflow of EU funds and accelerating adoption of modern IT technologies by enterprises as the key element of their business management infrastructure.
The shortage of workforce had a twofold effect on the dynamics of IT industry. On one hand, private sector enterprises need to increase their operational efficiency levels in order to maintain their own growth in the environment where additional labour pool is shallow. That results in the increased demand for IT solutions and the drive for outsourced solutions. On the other hand, scarce human resources, particularly personnel experienced in development of complex solutions has become one of the biggest if not the biggest limiting factors on the way to even more rapid growth of IT firms.

Exigen Services remains the biggest IT service provider, others far away

Exigen Services retained the 1st place in the Prime�s TOP-20 rankings. Its nearest competitor Sonex Group did not provide data for this year (in 2005, Sonex had EUR 15.6m revenue from IT service).
Alna recorded a significant growth adding almost EUR 4m to its IT service revenues, which put them in the 2nd place in the rankings.
Informacines Technologijos Group (total revenue of EUR 13m in 2006) and IT Alise/TietoEnator that would surely qualify to the TOP-20 did not provide data for the report. The report also does not include the data of the Baltic divisions of international vendors and service providers such as Siemens, IBM, and Skype.

Eight companies recorded annual growth greater than 80%

Newcomers of the Prime�s TOP-20 record the highest growth

The highest growth of almost 430% was recorded by ABC Software, a Latvian IT solution provider that specializes in development of specialpurpose systems for security and law enforcement institutions as well as web solutions. These high growth numbers were partially a result of revenues generated from several large projects that continued from the previous year but were billed in 2006.
Another newcomer to Prime�s TOP-20, FMS, a former subsidiary of Lattelecom Technology, specializing in ERP, financial management and accounting solutions, jumped to the 10th place by reaching IT service revenue of EUR 4.36m, a 242% growth. The company is expected to expand its Lithuanian operations as a result of a new joint-venture established together with Blue Bridge. FMS Lietuva will offer new corporate management solutions to private and public sector clients in Lithuania.
Webmedia remains one of the most rapidly and consistently developing IT companies in the region. Its IT services revenues grew up to EUR 7.05m (90%), while annual growth rates for the year 2005 and 2004 equaled 78% and 103% respectively.
Santa Monica Networks group that is operating in all three Baltic countries as well as Finland remained one of the fastest growing companies by increasing its revenues by 82% (117% in 2005).
Rix Technologies have showed significant growth of 107% that resulted from several completed large-scale projects and almost made it to Prime�s TOP-20 by taking the 21st position. The Company created the Latvian state portal and implemented the united migration system and digital culture card system.
ERP, a Lithuanian ERP solution provider, fell just short of Prime�s TOP-20 list as well. It occupied the 22nd place with IT service revenue of EUR 1.9m and annual growth of 61%. However, the revenue of ERP do not include company�s activity in Ukraine and Kazakhstan.
Two former incumbents of Prime�s TOP-20 - Lithuanian companies Prototechnika and Edrana, specializing in in-house accounting and business management systems, were surpassed by faster growing providers of complex and tailor made IT solution and left were left outside the TOP-20.

Added value is computed by summing EBITDA and personnel cost. The sum divided by the average number of employees results in added value per employee indicator.

Significant growth in added value

An increase in added value of over 20% for the companies which provided data is somewhat unusual compared to previous years when added value per employee remained almost unchanged. It suggests that significant market growth may be putting some of IT service providers close to fully exhausting their capacities. In the short run this may suppress growth of some smaller market participants as they will not be able to absorb all market potential and it is also likely to put upward pressure on the pricing of IT services.

IT sector strives for efficiency, faces personnel shortages

The most significant shift in added value per employee was determined by two factors. Firstly, market players managed to increase productivity while implementing large scale projects. Secondly, as the lack of qualified professionals is increasing in all three Baltic countries, the companies increasingly resort to subcontracting. This boosts added value per employee, as additional profit is achieved without the increase in in-house staff.

FMS grows in both revenue and added value

Latvian FMS, which showed one of the largest growths in IT service revenues, reached the largest growth of added value per employee. This helped FMS to occupy the 2nd place in added value ranking. FMS�s number of employees increased by 20% in 2006, while added value increased more than 3 times.
Estonian Helmes retained the 1st place in the added value ranking for the fourth successive years. The extensive use of outsourcing services is one of the factors for this great performance of Helmes.

IT service export share is the highest in Estonia, Latvia - in the middle, Lithuania - oriented to local markets

24 IT companies from the Baltic region provided additional information on service export activities. That revealed considerable differences among the three Baltic countries.
The results showed Estonia as the most export oriented with an average company exporting 33% of its IT services. That surpassed Latvian results that equaled 22%.
An average Lithuanian company is more concentrated on local market and exports only around 13% of IT services that is significantly below the Baltic average of 23%.

Source: Prime Investment, Baltic ICT market news − semi-annual review of recent corporate developments in the sector of information technology, fixed and cellular telecommunications and Internet access in the Baltic States.

END NOTES

Disclaimer:

The information contained in this document has been obtained from external sources, which we believe to be reliable. Although Prime Investment has taken steps to ensure the accuracy of the information presented we do not guarantee that it is accurate or complete, or make warranties regarding results of its usage.

Source of information used in this report:

Prime Investment, Baltic Business News, Baltic OXM Group, Baltic Times, BNS, Communications Regulatory Authority, Delfi, Digital Media News for Europe, ECTA, Elektronika.lt, ELTA, European Commission, European Information Technology Observatory, Eurostat, JT news, IDC, Infobalt, Information Society Development Committee, Infoworld, International Telecommunication Union, Internet World Stats, LETA, Lithuanian development agency, LITTA, MergerMarket, Statistics Lithuania, TNS Emor, TNS Gallup, Verslo Zinios, WebSiteOptimization.com, World Economic Forum, data provided by the companies.

Abbreviations used:

EE - Estonia; LT - Lithuania; LV � Latvia; CEE - Central and Eastern Europe; EU � European Union;
ICT � Information and communication technology; IT � Information technology;
CRM � Customer relationship management; ERP � Enterprise resource planning; SCM - Suitability chain management;

Notes regarding the consolidated data of Baltic ICT companies:

1 SIA Exigen Latvia, DATI Exigen Group.
2 In 2005: AB Alna, UAB Alna Business Solutions, UAB Alna Software, UAB Alnos infrastrukturos sprendimai, UAB Alnos mokymo centras (Group's company till January, 2005), UAB Alna Intelligence, UAB Tesauras, UAB DocLogix, Sia Unitree, OU Persimplex and OU Persimplex software. In 2006 added: Alna Business Solutions OU (former OU Persimplex), Alna Business Software OU (former OU Persimplex Software), Organizacij� licencijavimo centras UAB (former UAB Alnos infrastrukturos sprendimai), Alna Business Solutions Sp. z o.o.
3 In 2006: Lattelecom; Lattelecom Technology group, Citrus Solutions, Lattelecom BPO, Lattelekom Sakaru Sistemas.
4 In 2005: AS WMG (holding), AS Webmedia, UAB Webmedia, Oy Webmedia Finland, O� Transbility (Estonia). In 2006 added: Webmedia (Romania), Attribute Webmedia DOO (Serbia).
5 In 2005: UAB Elsis, UAB Elsis-Biuro sistemos, UAB Elsis-TS, UAB Elsis-Verslo sprendimai, ELSIS GP, UAB Elsis Pro, ELSIS Spb (St. Peterbourg), ELSIS Kaliningrad. In 2006 removed: UAB Elsis GP.
6 AS Helmes, OU Trigger Software.
7 UAB Sintagma, UAB Sintagma technika.
8 In 2005: AS Santa Monica Networks, UAB Santa Monica Networks, SIA Santa Monica Networks. In 2006 added: Santa Monica Networks Oy.
9 UAB New Vision Baltija, SIA New Vision, AS New Vision (UAB Pralo that was formed after acquiring UAB Compsoftus results are not included).
10 UAB Prototechnika, UAB Prototechnikos iranga, UAB Prototechnikos kompiuteriai, UAB Apskaitos sistemos, UAB Apskaitos iranga.
11 In 2005: I� Edrana. In 2006 added: SIA Edrana.