By Wayne Gudbranson

BACKBONE PRESENTS THE BRANHAM GROUP’S TOP 300 RANKING OF CANADIAN TECHNOLOGY COMPANIES.

2004 WAS A YEAR OF SUCCESS AND 2005 IS ALREADY LOOKING GOOD.

The 2004 year ends with a tsunami, a natural disaster that touches the world. As I write this article, relief efforts for the tsunami are well underway with countries and individuals providing what they can to rebuild the affected countries. Undoubtedly, as the relief efforts take hold, attention will turn to prevention, and technology will certainly feature prominently in providing warning systems with better safeguards to ensure timely reporting of impending earthquakes — under the sea or above-ground.

Other news in 2004 included the ongoing hostilities in Iraq, the re-election of president Bush, Paul Martin and the Liberals hanging on to a minority government, the NHL lockout, the ongoing saga relating to Nortel’s financial picture, and countless acquisitions in the Canadian information and communications technology (ICT) sector. With all that, the Branham300 companies persevered and, as a group, did well.

The top IT companies produced, on average, a 12 per cent increase in revenues over 2003 — impressive given that Canada, on average, experienced a little more than 2.7 per cent growth. And increases were experienced by companies ranking throughout the top 250 positions. This clearly demonstrates that the ICT industry is an important driver for our economy. Some companies attributed their success to outsourcing, the release of new products, and the emergence of new alliances, but in most instances, the increase was fostered by a greater understanding of customer needs and a clear mandate to satisfy those needs. As for 2005, many see new or greater opportunities in continuing to meet customers’ needs specifically in the areas of security, mobility, storage, Vo IP, RFID, outsourcing and integration.

For years, large enterprises have been the major target for all ICT companies, but in 2004, we began to see a concrete focus on the SMB market. In 2005, this focus will be more pronounced and evident in ICT vendor go-to-market strategies.

We will also see more focused spending on verticals and sub-verticals. The government and financial markets in Canada continue to be important. However, new markets such as healthcare are beginning to emerge. Without question, healthcare, like hockey, is a topic that is top-of-mind for all Canadians. But this national concern for healthcare is now shifting some attention to the use of information technology as a mechanism for improving service delivery in our system. All levels of government understand the growing need to invest in ICT in this market. On the vendor side, Canada has a number of players, both Canadian and foreign multinationals, that are well poised to respond to increased demand for healthcare ICT product and services. Many companies are already making inroads into the health market and will certainly capitalize on this renewed interest in 2005.

As you review the Branham300, you will find that many of the companies listed are uniquely positioned to make great strides in 2005, as their focus and capabilities fall well within the forecasted areas of opportunity.

TOP 250 CANADIAN ICT ORGANIZATIONS
The Top 250 is populated by various categories, and although the Hardware and Infrastructure category only accounts for 12 per cent of the individual top 250 organizations, its revenues account for more than 51 per cent of total revenues generated by the top 250 organizations. Not surprisingly, leading the top 250 once again this year is Nortel Networks.

Despite its woes, including the financial scandal, change in management, lawsuits, extension after extension for filing deadlines with the SEC and the TSX, Nortel is managing to sell. This is quite an accomplishment for an organization undergoing such turmoil.

Celestica ranks second overall and experienced a growth rate of nearly 30 per cent over 2003. Although this growth rate is less than its initial guidance, Celestica continues to move forward in anticipation of becoming profitable again. Upon announcing third-quarter results, CEO Steve Delaney explained: “Despite lower demand this quarter from some of our largest communications and IT customers, we continued to expand margins, reduce [selling, general and administrative] expense spending, improve customer diversity, act on unprofitable or non-core activities and generate healthy cash flow from operations.

Although end-market demand is less stable than earlier in the year, our focus will remain on delivering steady improvements in our profitability, driving cash flows and building on the success of our lean implementations in order to drive even greater efficiencies for our customers.”

BCE’s wireless and data segments rank third overall. BCE is the quiet giant that holds a significant percentage of the wireless and data market, even though much of the news seems to focus on Telus and Rogers.

Telus ranks fourth this year as it continues to expand in the west and seeks to make inroads into the eastern market.

Certainly Rogers Wireless Communications’ successful takeover of Microcell Telecommunications (fido) in November 2004 will make Telus’ foray into the east more challenging, but undoubtedly Telus will continue to draw on its foresight and great planning skills in order to broaden its stake in the industry.

CGI Group ranks fifth and represents the top IT services company. CGI, through the strong hand of chairman and CEO Serge Godin, continues its growth through a strategy of acquisitions in key markets and meeting client demands. “We are pleased with the solid performance we delivered in fiscal 2004,” Godin said. “Our continued double-digit growth and good profit margins result from the disciplined execution of our business plan. During 2004, we made our largest U.S. acquisition yet, doubling our footprint in the U.S. and Europe. We won large outsourcing contracts in each of our three main markets — Canada, the U.S. and Europe, and further demonstrated our core competency in the integration of acquisitions and outsourcing contracts.” CGI projects 2005 will continue to be a positive year.

Ranked sixth, Rogers Wireless Communications saw revenues increase 15 per cent over 2003. Rogers, through its acquisition of Microcell Telecommunications (fido), as well as its alliance with EastLink of Halifax, continues to increase its presence in the eastern region. Telus and Rogers will continue to battle with BCE for supremacy in 2005, with consumers likely being the winners.

The top software company is Cognos, ranking eighth overall, with a year-over-year increase of 24 per cent. That’s an impressive statistic given revenues increased 12 per cent in 2003. And for the nine-month period ended Nov. 30, 2004, Cognos reported an overall increase of 18 per cent in revenues with its largest increase stemming from its Asian sales. Cognos credits this growth to the momentum of its products, particularly Cognos ReportNet.

Undoubtedly, Sarbanes-Oxley (SOX) and its disclosure and retention requirements have helped spur the momentum of Business Intelligence (BI) software investments.

TOP 25 MULTINATIONALS
Many of the top 25 IT multinationals remain unchanged, although some of the leaders continue to jockey for third to sixth position.

IBM and HP continue to maintain their strong entry as number one and number two. IBM Canada signed important deals late in 2004 (a $70-million agreement to transfer the management of Maritime Life’s technology infrastructure to IBM, a 10-year $300 million agreement with the province of British Columbia, and the list continues), which already bodes well for a successful upcoming year. HP Canada, on the other hand, won a sevenyear outsourcing agreement with TD Bank Financial Group valued at $420 million. Also in 2004, HP Canada cleaned up a little dirty business initiated in 2003, resolving a dispute with the Government of Canada stemming from a complex scheme designed to exploit both parties through contracts inherited through HP’s merger with Compaq Computer Corp. HP agreed to reimburse the Government of Canada $146 million.

This year Xerox jumped into third place, EDS maintained its fourth place standing, while Microsoft slid into fifth position and Cisco stayed steady in sixth. However, in terms of dollars, these companies are very close and it is not unusual to see them battle it out for these top 10 positions.

The top services multinational is Accenture, ranking seventh with $613 million in revenues, marking a 31 per cent increase over 2003. William D. Green, Accenture’s CEO, commented: “We are pleased with our results, which reflect our ongoing success in helping clients become high-performance businesses. Our growth was widespread, with net revenue increases in each of our five operating groups and across all three geographic regions. We are encouraged by the continued gains we achieved in our consulting business, and by growth in our outsourcing business, which now accounts for 37 percent of our net revenues.”

Other noteworthy performers in 2004 were Computer Sciences Corp. (CSC) and Symantec. CSC attributes its greater than 30 per cent increase in revenues to its global commercial outsourcing activities. And for the first six months of its 2005 fiscal year, it has generated an overall increase in revenues of eight per cent with a positive bottom line.

Symantec ranked 17th overall on the Top 25 multinationals and should see 2005 ring in even brighter than 2004.

On Dec. 16, 2004, Symantec and Veritas Software entered into a definitive agreement to merge in an all-stock transaction.

Their aim is to provide a more effective manner to secure and manage a company’s information. The proposed merger is being met with mixed reviews and time will be the final judge of its cleverness.

TOP 10 CANADIAN xSP COMPANIES
As expected, the telecommunication and cable companies dominate the top 10 xSP companies (Application, Managed, Wireless and Internet Service Providers) and they are headquartered throughout Canada, with the highest concentration in Quebec, followed by Ontario. Total revenue for the top 10 xSP companies is just below $16 billion while the top 10 software and top 10 services companies generated revenues of $3.0 billion and $5.6 billion, respectively — a testament to the sheer size of the three xSP companies concerned. BCE, Telus and Rogers Wireless are the top 3 xSP organizations. Comparing their wireless revenues alone we see how close the competition really is.

TOP TECH COMPANIES 25 UP AND COMERS
It is always an exciting opportunity to review and assess the hot and exciting upstart companies within Canada.

Many of Branham’s selections this year offer a product or service focused on the wireless industry, others on storage solutions, while others simply focus on a specific vertical. But all have something unique to offer, and with proper funding and planning, they could become part of Canada’s IT elite.

More information about he individual companies is provided in the online version of the Branham300 listing (http://www.branham300.com or backbonemag.com/300"target=_blank>http://www. backbonemag.com/300).

TOP 20 MOVERS AND SHAKERS
Many companies, large and small, within the Top 250, made great strides in 2004; they were able to solidify their positions in their respective markets whether through product development, acquisitions or the development of new geographic markets.

iSTARK, a 2003 Branham300 Up and Comer, had the largest improvement in its ranking, moving up 68 positions to number 158. iSTARK provides e-business portal solutions and Webbased productivity tools for the international cement and concrete community. Since its inception in 2000, iSTARK has become an industry leader in its field.

Brainhunter saw its many acquisitions, made throughout this year and last, help it move up 66 positions and place itself in 47th overall. In 2003, Brainhunter had not even broken the top 100 organizations and now sees itself in the top 50. Brainhunter boasts the only Web-enabled end-to-end recruiting and staffing technology platform in the industry and will use this to continue its strong growth pattern.

Not surprisingly, cryptography vendor Certicom, a hot company in a hot market, climbs 52 positions to sit at 65 in 2004.

Already into its second quarter of 2005, Certicom continues to achieve and act upon its strategy. “Opportunities for intellectual property licensing continue to build and we expect to complete some agreements in the second half of fiscal 2005. These opportunities further support our long-term business model by providing royalties and recurring revenues over future quarters,” said Ian McKinnon, president and CEO.

AirIQ, another hot company, focuses on combining mobile computing intelligence, wireless communications and locationbased technology, the Internet and digitized mapping. In March 2004 it announced the development of an interface with Bluebird Auto Rental Systems using AirIQ’s universal interface protocol.

In October it closed a $12 million private placement and closed the acquisition of Boatracs’ business, thus extending its geographical service coverage to marine fleets in Alaska and Hawaii. QA Labs outsources testing and quality assurance services to software companies. It has established a strong reputation, and now ranks as the Canadian leader in software QA testing. In late 2004, it announced a restructuring plan that would see its president, Wolfgang Strigel, take a more active role in operations as well as sales and marketing, in addition to hiring a director of sales and a sales specialist.

“Over the last five years QA Labs has grown to employ over 120 staff without a marketing or sales team. The addition of Francis Hart and Sandra Jahnke will allow us to better serve our existing customers and to expand our market penetration,” Strigel said.

Mamma.com provides information retrieval on the Internet through its metasearch engine, and provides integrated marketing solutions to online advertisers. Guy Fauré, Mamma.com’s president and CEO, said: “With our recent announcement, where we offer our Ad Network publishers Web and site search features, we expect this to further improve our search revenue streams coming from this important group of publishers.”

T4G, a full-service project-based IT professional services company, signed several important deals in 2004, including a contract to build British Columbia’s Destination Management Solution, as well as an extension of its relationship with Sears Canada Inc.

Stockgroup Information Systems, a financial media and technology company, also signed several important contracts in 2004 (Canaccord Capital, Action Engine, Symon Communications, etc.) and launched a new design for its StockHouse financial Web portals.

CEO Marcus New stated: “Our licensing business continues to sign new customers and our strategy of fulfilling more market information needs of our enterprise clients continues to generate success with additional incremental revenue.”

Companies that did not make the top 20 Movers and Shakers list but are nonetheless worth noting are: Manitoba Telecom Services (MTS), scaling from 25th position on the Top 250 list to 13th overall. Clearly its acquisition of Allstream contributed to this impressive achievement.

Sierra Wireless, moving from 34th to 24th position. New products and new alliances helped it realize this increase.

Cedara Software moves from 74th to 57th as it develops new products, obtains new financing and posts a healthy net income in 2004. “Fiscal 2004 was an excellent year for Cedara, one in which the company achieved very significant financial and market milestones,” said Abe Schwartz, Cedara’s president and CEO. “Cedara ended the year with record earnings, a sound balance sheet and in a strong position to take advantage of new growth opportunities.”

With its October 2004 acquisition of eMed Technologies, Cedara is poised for another good year.

TOP 25 CANADIAN IT SOFTWARE COMPANIES
The top 25 software companies posted an overall increase in total revenues of 23 per cent — certainly a boost after a rough 2003. The majority of the top 25 continue to figure prominently in Ontario, with Quebec ranked second and B.C. third.

The top six software companies have effectively remained the same since last year, with Cognos and Geac maintaining their first and second place standings. Open Text, Hummingbird, Constellation Software and Algorithmics complete the top six with Open Text and Constellation displacing Hummingbird and Algorithmics from their former rank.

However, making an impressive showing is CryptoLogic, which moved into the top 10 and ranked seventh from last year’s 13th position. CryptoLogic, a software developer for the Internet gaming industry, not only saw its revenues increase 40 per cent, but also saw its net earnings increase more than 50 per cent. And the great news does not end there. The company had no debt at the release of its most recent quarter and maintained a very healthy cash reserve. This is certainly a company worth watching in 2005 as the online gaming market takes hold throughout the world.

Newcomers to the top 25 software companies are: Optimal Payments Inc., the company resulting from the April 2004 merger of Terra Payments and Optimal Robotics. (Terra Payments formerly operated as SureFire Commerce.)

MediSolution offers healthcare information technology. Speedware provides leading enterprise software solutions through its four operating divisions: Enterprise Computer Systems (ECS), Prelude Systems (PSI), OpenERP Solutions and the Productivity Tools division. Record revenues of $44.4 million for the year, resulted in EBITDA (earnings before interest, taxes, depreciation and amortization) of $9.5 million and net earnings for the year of $5.1 million ($0.17 basic, $0.15 diluted/share), not only showing off positive signs on its top line, but carrying it over to the bottom line — always an investor’s dream.

Certicom provides digital encryption products and services for secure communications between wireless devices. Fiscal 2004 was a banner year for Certicom, generating its first profitable year.

A summary from Certicom’s Web site said: “Full-year revenues of U.S.$34.5 million and net income of U.S.$17.2 million; improved liquidity, U.S.$36.9 million in cash at end of fiscal 2004 and announced an IP licensing strategy validated by RIM contract in Q1 FY2005.”

Redknee provides telecommunication software solutions.

Redknee welcomed a vast array of new clients including MTCVodafone Kuwait, O2 Ireland, which is part of the mmO2 Group, O2 group in Germany, Caribbean wireless operator Digicel, etc. Its new slogan could be “Redknee: making footprints around the world.”

THE TOP 25 CANADIAN IT SERVICE COMPANIES
The top 25 IT service companies, as in the past, are comprised of organizations which are peppered throughout Canada, unlike the software organizations which are largely “east-centric.”

Overall revenues for the top 25 increased 14 per cent over prior-year reported earnings. CGI Group, ranking number one once again, is quite an impressive company, forging forward in its bid to become the best and biggest worldwide. In fact, its revenues are nearly 4.5 times higher than those of its closest Canadian competitor. With its acquisition of American Management Systems Inc. (AMS), ranked 24th on last year’s Branham300 Top 25 Multinationals, CGI is entrenching itself into the U.S. market, the fruits of which should be seen in 2005 and beyond.

However, also worth noting are some of this year’s biggest winners in terms of revenue increases. Leading the way with the largest year-over-year increase is Brainhunter, ranked 12th and effectively tripling its revenues. Its increase is largely explained by a number of acquisitions it has made over the past two years. Blast Radius increases revenue by more than 50 per cent as it continues to expand its already impressive client list (e.g. A&E Television Networks, AOL, Bell Canada, BMW Canada, Heineken, Nike, Nintendo, Philips, Sony, etc.) Unfortunately, it was not all good news for the top 25 IT services companies, as AXIA NetMedia saw revenues drop by more than 50 per cent after the completion of the Alberta SuperNet project. AXIA, however, sees this as an opportunity to focus on higher margin projects.

TOP 10 CANADIAN IT SECURITY COMPANIES
Many of the listed IT security companies are small, in fact, total revenues for the top 10 are just shy of $122 million. Four of these companies generated less than $5 million in annual revenues. But they are growing; seven of the companies listed experienced double-digit growth in 2004.

Certicom ranks first with revenues of $41 million, triggered in large part by the business win of a non-recurring US$24.8 million licensing contract with the U.S. National Security Agency (NSA).

Accordingly, revenues for the first six months of fiscal 2005 have fallen substantially (reported revenues are U.S.$5.5 million for the six-month period ended Oct. 31, 2004). However, Certicom is debt-free with a healthy cash reserve.

Boomerang comes in second with revenues of $26.5 million, a 27 per cent increase over the prior year (fiscal year-end is April 30). Boomerang was so successful that on Oct. 29, 2004, six months into its 2005 fiscal year, LoJack Corp. (Westwood, Mass.) acquired it.

Bioscrypt, a developer of fingerprint-based biometrics products, ranked third with a 45 per cent increase over 2003, with Cinnabar and Diversinet rounding out the top five IT security performers. New to the top 10 were Absolute Software and TRM Technologies. Absolute created CompuTrace, software designed to assist in the recovery of stolen computers, and although on a positive sales cycle, the company is not yet profitable. With a strong sales strategy and its focus on security, Absolute should be able to overcome this in the short term. TRM derives more than 50 per cent of its revenues from IT consulting contracts; it is a small business making headway into a big industry.

TOP 10 CANADIAN WIRELESS SOLUTION PROVIDERS
Research in Motion continues its reign as the top wireless solution provider, followed by Sierra Wireless, MDSI, Certicom and Redknee.

MDSI provides mobile workforce management solutions and has been building its customer base and forging new alliances in hopes of turning the corner and building an earnings base for the future.

MDSI finalized its restructuring efforts in Q3 2004 and anticipates the company will now begin to generate a positive bottom line.

Versatile Mobile Systems (VMS), ranking sixth, develops mobile business solutions that enable companies to improve the sales, marketing and distribution of their products. VMS has been focusing on its Radio Frequency ID strategy and target vertical markets, specifically consumer product goods and the healthcare sectors. Since its June 30, 2004 fiscal year end, VMS has announced the acquisition of InfoLogix Inc./Optasia ACQ, LLC, collectively known as InfoLogix, which would have seen their revenues rise to $70 million if the acquisition had been completed by June 30, 2004. InfoLogix (Bensalem, Penn.) manufactures solutions for the mobile workforce and will provide VMS with a strong customer base as well as new solutions. Infowave Software, ranking 10th, nearly doubled its revenues to $5.8 million. Jerry Meerkatz, president and CEO, had a positive outlook at the end of Q3 2004, stating: “...we have posted record revenues while reducing operating expenses, and forged invaluable customer and partner relationships in an effort to establish Infowave as a dominant player in the enterprise mobile application space to create future shareholder value. Our deployment at Chevron Texaco further solidifies our position as the leading provider of EMA solutions for large-scale enterprises.”

TOP 25 CANADIAN ICT INFRASTRUCTURE AND HARDWARE COMPANIES
Nortel Networks, 2004’s top Canadian IT newsmaker for largely negative reasons, missing several self-imposed deadlines to issue revised and audited financial statements for the past three years, managed to maintain its number-one ranking despite an estimated four per cent overall decrease in revenues. However, Celestica is closing the gap, generating revenues of $10.4 billion, about 10 per cent less than Nortel’s anticipated sales for 2004. In fact, Celestica’s revenues increased 29 per cent as they focused on client diversity.

Mediatrix Telecom, a newcomer to the top 25, is a developer of advanced Vo IP access devices, gateways and routers, and increased revenue by more than 250 per cent. Throughout 2004 it broadened its client base, launched new products and signed new distributor agreements. It received several accolades and was nominated as one of Pulver’s Top 100 Companies to Watch.

INTO 2005
The upcoming year already promises to be as tumultuous and exciting as the ICT industry has been since its inception: new products, new ideas, new scandals, new acquisitions, management changes, etc. Yet the year promises to be a positive one with many companies, large and small, increasing IT budgets and updating infrastructure and related issues. Overall, despite many industries projecting average growth rates of three per cent for 2005, we can expect that on average the Canadian IT industry will fare better, likely doubling and perhaps tripling the norm.