They may own 60% of the equity but HP is getting less and less benefit from its Bangalore-based subsidiary, Mphasis. Only 31% of Mphasis’ Rs14.2bn (c.$230m) derived from HP clients last quarter (to 31st March), the lowest since EDS acquired its original 52% stake back in 2008, and 9% lower than the prior quarter. Fortunately, Mphasis’ non-HP business grew sufficiently to just offset the precipitous decline in the HP channel, keeping quarterly headline growth just above flat. However, operating profits dropped nearly 3% trimming operating margins back 40bps to 12.6%.
Mphasis recently realigned its FY from that of HP to 31st March (like most but not all India-based peers) so there are no direct comparisons to the prior FY. But for the record, FY revenues sat at Rs57.8bn (c.$950m) with operating margins at 13.4%.
Mphasis deleted the HP brand from its logo early last year (see here) giving a strong message as to the value it puts on its association with its owner. Nonetheless, Mphasis makes a net profit contribution to HP’s bottom line and HP management has higher priority matters to handle than worry about its renegade offshore services arm. It’s a great shame that HP never worked out how to make Mphasis work for its enterprise services business, as maybe then we wouldn’t be writing headlines like HP Enterprise Services down 10% in Q2!
Posted by Anthony Miller at '12:42'
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In UK Public Sector SITS Supplier Landscape: 2014-15 we summarised the Defence ICT Transformation Programme and now plans are beginning to turn into actions.
The MoD has signed a Microsoft Enterprise Agreement (EA) to move users to the cloud, specifically Office 365. In November last year the EA was tendered under Lot 2 of the Technology Products agreement and is valued at £41m.We first heard about the contract earlier this week via Paul Kunert at The Channel Register (see his original story).
The tender was won by Comparex (a Leipzig based provider of license management, sourcing, technical product consulting and cloud-based professional services) beating Software Box Ltd, which had been the incumbent supplier for the past 11 years. The existing agreement with SBL runs until summer 2016.
The MoD is phasing the roll out over three years with 90,000 users up and running by the end of year one, 150,000 by the end of year two and 180,000 by year three. The Atlas consortium, led by HP, will help roll out the service.
The MoD’s ICT environment has come in for much criticism. MoD CIO Mike Stone joined in May 2014 and identified 30 specific improvements to the ICT experience for MoD users including better access to the internet, quicker logon and logoff times.
A relatively new CIO shaking up the ICT estate and a contract award to a new supplier should encourage SITS suppliers both large and small to explore potential opportunities in the transformation programme.
Posted by Michael Larner at '09:56'
It now looks a certainty that Quindell will become a fraction of its former self, now that personal injury lawyers Slater & Gordon (S&G) have been given the green light to complete their takeover of its Professional Services business (see here and work back).
In a very brief note Quindell said ‘approval of the Financial Conduct Authority has been granted and the disposal is now unconditional’.
Quindell rapid rise and fall is already something of legend in the UK BPS market. It made it into our UK BPS market Top 10 almost out of nowhere on the back of multiple acquisitions (see UK BPS Supplier Landscape 2014), and it now looks destined to disappear just as quickly this year. It's too early to tell whether S&G will be pursuing a BPS market play once the deal closes. Let's just hope they know what they're getting into.
Posted by John O'Brien at '09:34'
We recently caught up with Andrew Anderson, CE of Little British Battler (LBB) Celaton - the next-gen business process automation (BPA) player that uses artificial intelligence to automate processing of inbound digital comms.
It's clear that Anderson is seeing lots of new opportunities emerging around the concept of improving the overall digital customer experience (see Why is Digital Customer Experience key to future BPS service delivery?). Celaton has just won an award from sourcing advisors Aecus for its work with Virgin Trains (VT) to help its customer service team manage a doubling in email correspondence and complaints over the past year (see here).
Celaton’s InStream platform was set to work on identifying and processing 400 categories of customer emails. Using AI, the system learns what a complaint is and then provides an automated initial response.
VT had been previously throwing temps at the problem, which is costly sticking plaster, and didn’t solve the problem. By automating the service, human effort has reduced from 32 man-hours per day to 4 hours per day. And VT has been able to remove the need for temps altogether.
VT’s challenge is one many organisations are facing as they shift more communications to digital channels. It can create a sudden increase in volume and velocity of communication – whether good or bad – and both need to be managed carefully.
This presents opportunities for next-gen BPA providers - whether through use of robotics, AI/machine learning and/or virtual assistants. BPS providers are aware of the threat of disintermediation here, and are starting to fight back (see Wipro bets on artificial intelligence with HOLMES).
Anderson told us that he is now working on a number of other workstreams for VT such as general correspondence, white mail, feedback and delay related compensation, and expects the level of growth to exceed 500% over the next 24 months.
This gives us confidence in our view that the process challenges thrown up by DCX are very real and only just coming to the surface. We expect this to present significant new business process opportunities over the next few years.
Posted by John O'Brien at '09:18'
Only a week after publishing a trading update, see Tungsten yet to show its mettle, this AIM-listed electronic invoicing and financing company has announced talks with an un-named global financial institution about forming a joint venture.
Tungsten Corporation offers an Early Payment option for suppliers connected to its network, but this has progressed more slowly than anticipated. The JV under discussion is said to involve this side of the business and also some of the potential partner’s customers. In addition there are ongoing discussions with the PRA about Tungsten’s strategic options. All very intriguing, but no hard news.
On the announcement of the talks, the management moved quickly to issue shares, raising a total of £17.5m, with good demand lifting proceeds from the original target of £15m. The cash is to support investment in Tungsten’s Network, operations and on-boarding process, boost sales and marketing and fund additional innovation. In January the company had net cash of £27.7m, but it is investing heavily. The placing price was at a near 40% discount to the level of the previous week.
The potential joint venture could provide a useful acceleration of Tungsten’s move to scale and also improve its competitive position but we will have to await further announcements before we can pass judgement.
Posted by Peter Roe at '08:57'
Each of HP’s four business units showed a revenue decline in Q2, with Enterprise Services fairing the worst. Printing and Personal Systems was down 6%, Enterprise Group down 1% and Software down 8%. Enterprise Services (18% of revenue) declined 16% (10% cc) but operating margin improved from 3% to 4% (the FY15 objective being 4-6%). To get to its longer-term objective of an operating margin of 7-9%, HP says it will need to take out $2bn of gross annualised costs over the next three years. ITO revenue was down 20%, with application and business services down 8%. HP blames account run off and generally poor conditions in the EMEA and outsourcing markets. The Group top line (which last grew in Q3 of 2014) declined 2% (cc).
For the services business to deliver sustainable profitable growth in the longer-term, HP has got to reverse the top line trend - it cannot rely on cost cutting alone for improved profits. While it blames the market, we do believe other suppliers are managing to grow in the UK (e.g. IBM, Fujitsu). HP’s mega-deal signing with Deutsche Bank in February was highly commendable and we expect this to have a very positive impact on the top line this year and beyond. However, with so few mega-deals in the market, HP can’t rely on winning one of these from time-to-time. It needs to increase its volume of contract wins (those smaller than mega deals) in its traditional markets, while of course also increasing sales of SMAC services.
In the background, HP continues to move ahead with plans to split the business into two. The promise is that this will be done by the new financial year. It’s the right thing to do, but we have no doubt it’s causing all sorts of distraction.
Despite the revenue declines, HP’s shares were up 1% in afterhours trading, partly in response to the news that it is to spin off its Chinese server business into a joint venture with Tsinghua University.
Posted by Kate Hanaghan at '08:46'
Soho-based visual effects (VFX) software developer The Foundry Visionmongers has changed private equity owners, with HgCapital assuming majority ownership from The Carlyle Group for an enterprise value of £200m. HgCapital led the investment alongside some of its institutional clients, with its listed vehicle, HgCapital Trust, injecting just under £20m.
HgCapital is very active in the European software sector – this is its fourth deal over the past 12 months, most recently including the take-private of AIM-listed workplace management software firm Allocate Software (nee Manpower Software) at the end of last year (see HgCapital snaps up Allocate Software).
It’s great to see a world-leading UK software firm staying put this side of the Atlantic. US-based Adobe had been mooted as a potential trade buyer.
Posted by Anthony Miller at '07:46'
After reporting on a good 2014 and announcing the acquisition of the Skrill Group in March, see here, the management of Optimal Payments state that trading for the first four months of 2015 is progressing in line with their expectations with the NETELLER Stored Value and NETBANX Striaght Through Processing businesses doing well.
Significant management attention is focused on the integration of the Skrill business, following a £451m rights issue and £500m of loans being put in place. Regulatory approval is expected in Q3 and the management team will then be looking to generate cost synergies by merging the Stored Value businesses of both operations.
The move to acquire Skrill has moved Optimal Payments into the Premier League of the Payments sector. The Group is now valued at over £1.1bn and is seeking a Main market listing on the LSE. This should open the share up to a broader range of potential investors. The announcement of a Capital Markets day for them to set out the company’s strategy is welcome, although this will be in Q4. Half year results will be announced in late August.
Posted by Peter Roe at '09:45'
Lombard Risk Management, the provider of regulatory reporting and collateral management solutions issued a profits warning earlier this year, see here. Today’s results show the impact of the predicted lower revenue growth in the second half and the significant consequent impact on EBITDA.
Full year figures to the end of March showed overall revenue up by 5.4% to £21.5m, with Adjusted EBITDA falling to £4.3m, from £6m. This meant that EBITDA in the second half was down 40% on the level of the previous year. Lombard Risk’s profits have historically been second-half weighted and its business model includes up-front costs which would not have been reimbursed due to contract signing delays. Pre-tax profits of £2.2m were less than half earlier forecasts.
This hiccough, although not the first, should not detract from the long term value of the company’s position. Success in collateral management continued, with 125 customers now on board, although the growth did not quite match the level of 2013/4. Risk Management and Trading did well, with expansion into North America and Japan. Growth overseas and through alliances is now a major initiative. The company has scale and a range of standardised approaches to enable companies to cope with the increasing tide of regulation and this should be increasingly attractive, particularly as mid-range financial services companies focus their activities.
With more regulatory deadlines on the horizon Lombard Risk’s services should be in demand, although the company will remain vulnerable to changes in the regulators’ timetable. The management, and the new Chief Executive when he arrives following John Wisbey’s decision to step back, see here, need to restore confidence in what we consider to be a sound business model with a strong competitive position and attractive long term outlook.
Posted by Peter Roe at '09:39'
IPTV is not precisely in our usual space but perhaps it should be. In any event, as flag-wavers for UK tech in general, it is more than worthy for us to note that AIM-listed, Cambridge-based IPTV device and software developer, Amino Technologies, has acquired Finnish cloud IPTV software firm, Booxmedia, for a maximum €10.5m, mainly cash. Booxmedia was founded in 2009 by ex-Nokia employees whose IPTV development programme was axed when Nokia started to downsize. Wrong decision in retrospect!
Amino generated £4m of operating profit on £36.2m in revenues last year, and is chaired by industry veteran Keith Todd, who also chairs ex-AIM listed derivatives software firm FFastfill (see FFastfill to join Dearly Departed) and who previous led the late ICL (now Fujitsu Services). Amino listed on AIM in June 2004 at 120p valuing the company at £61m. Its shares peaked later that year at over £3 but plummeted to a nadir of 25p by the end of 2009. Amino’s shares have since recovered to 130p.
The Booxmedia deal seems to make great sense as it extends Amino’s proposition into the smartphone world. Right time, right place.
Posted by Anthony Miller at '09:02'
Today’s news that communications services firm, Daisy, is in “advanced talks” to buy Phoenix IT comes as no great surprise. The two companies share a common shareholder (Toscafund Asset Management) and both are on strategically significant journeys.
Phoenix, under CEO Steve Vaughan, has been following a turnaround programme to fix both the top line and profitability. Numbers from last year were poor with revenue down 6.7% (to £233.m) and underlying EBITDA down 8% to £30.5m. However, various trading statements have indicated positive tones in the current year (Phoenix reports on 8 June).
Daisy, meanwhile, was delisted from the stock exchange and taken on by a consortium of buyers consisting of Toscafund Asset Management, Penta Capital and Matthew Riley (Daisy’s founder). At the time we spoke of the “major surgery” we expected in order to transform the company’s portfolio of services and financial performance. The Phoenix acquisition would offer an acceleration into IT services – indeed, it would catapult Daisy into our Top 20 ranking of infrastructure services providers. It would also provide links into many prospective customers/partners (many being IT services firms) for cross-sale of its other services.
The “possible recommended cash offer” is for 160p per share, which +24% on yesterday’s closing price (129p). When Vaughan took hold of the reins last year Phoenix was trading at 122p.
Daisy has completed its due diligence and is “well advanced with the finalisation of the necessary financing arrangements”. It now has until 18 June to confirm its full intention to make an offer. Our sense, however, is that we won’t have to wait that long and that we could well be seeing a new name in our ranking of infrastructure services players before too long.
Posted by Kate Hanaghan at '08:53'
Hats at the ready - I think I may be having a ‘Paddy Ashdown’ moment. Salesforce.com has made its first ‘real’ operating profit in 18 quarters! It’s ‘only’ $31m but it’s a profit, fulfilling CEO Marc Benioff’s prediction earlier this year (see Salesforce predicts ‘more profitable’ year). This resulted in one cent net earnings per share on headline revenues for the quarter (to 30th April) 22% higher, at $1.41bn (+27% at constant currencies).
But maybe my hat (and digestive tract) will be safe after all; Salesforce is guiding for a small net loss next quarter and indeed for the FY. Phew!
Benioff is not bereft of ambition. He wants the company to be the fastest to reach $10bn in annual revenues (current run-rate over $6bn), and sees steady-state operating margins at the mid-30% level “when we get the business at a mature level of growth”. I assume this is on a non-GAAP basis (i.e. “excluding stock-based compensation, amortization of acquisition-related intangibles, amortization of acquired leases, the net amortization of debt discount on the company's convertible senior notes, and gains/losses on conversions of the company's convertible senior notes, gains/losses on sales of land and building improvements, and termination of office leases, as well as income tax adjustments”. I think that about covers it!)
Benioff clearly has his sights set on SAP. “(W)e are really targeting one company to surpass, which is SAP. Fortunately for us, their kind of lacklustre growth, execution and lack of innovation in their core products … well, you know what? They're an easy target, and that's our next goal.” SAP’s revenues grew by 4% last year to €17.6bn/$23.5bn.
But oddly Benioff made no mention of Salesforce’s new relationship with Sage (see Sageforce – It’s about time). I guess the excitement of making a profit overshadowed everything else.
Posted by Anthony Miller at '08:19'
A positive Q115 update from InternetQ shows profit ‘higher than expected’ thanks to a strong start to the year.
For the Q1 period to 31 March, InternetQ’s adjusted EBITDA margin rose three points to 18.5% (vs. 15.8%). Meanwhile, group revenue was up 11% to €33.5m.
This is an encouraging improvement in short time for the mobile marketing and digital entertainment provider, after experiencing margin pressure in FY14 (see here).
Apparently, margins are better in both business divisions - B2B mobile marketing (Minimob) and B2C digital entertainment (Akazoo). The strategy meanwhile is unchanged, to pursue further geographic expansion, investment in technology and product development, and establishing additional key partnerships to broaden its reach into emerging markets, particularly Asia and LatAm.
Posted by John O'Brien at '07:44'
After spending much of last year exploring opportunities in Asia Pac, cloudBuy, the provider of eCommerce marketplaces, has announced the firm will be working alongside Salvere (the social enterprise CIC) to provide a marketplace to help meet the implementation challenges of the Care Act.
Changing Government policy means citizens now have more control over their care; choosing their care options and paying for provision from personal budgets. The Salvere-branded care marketplace (which has G-Cloud approved status and is listed on the UK Government Digital Marketplace) aims to act as a conduit for citizens to have direct contact with social care experts, to guide them in their choices and to provide a service similar to online shopping sites for purchasing care.
As ever, cloudBuy will charge a fee to on-board suppliers to the Salvere marketplace and will take a percentage of the value of transactions flowing through it. So far Salvere has established relationships with over 350 care suppliers in Lancashire, with plans to expand to other regions.
In ‘cloudBuy needs to deliver’ we highlighted that the company had been moving from being a provider of UK Public Sector marketplaces towards being a global e-commerce provider. But policies such as the Care Act are drawing management’s attention back to its home territory. Cloudbuy’s expertise in analytics, management and compliance services should play well to concerns among local authorities regarding the introduction of social care marketplaces. However cloudBuy and Salvere will not have this market all to themselves. Last year, for example, we met Quickheart (see LBB Quickheart: Care Act set to quicken revenue pulse), which also has a self-service solution for social care and is scaling up with partners such as Agilisys, Capita and Atos.
After full year results showed a 29% revenue decline we suggested that 2015 would be a crucial year for cloudBuy. Deals in Asia Pac offer tantalising prospects (see cloudBuy – full of Eastern promise?) but underpinning the changes in social care could be more promising still.
Posted by Michael Larner at '09:59'
The news rather overshadowed the company’s FY results yesterday, but it came as little surprise that recovery case CSC is indeed to split into two businesses though, contrary to expectations (see CSC rumour mill grinds ever faster), both remaining publicly traded. Investors will end up with shares in both companies – CSC US Public Sector, a $4.1bn revenue business that does what it says on the tin, and CSC Global Commercial, an $8.1bn revenue business that doesn’t quite do what it says on the tin as it also includes non-US public sector business such as NHS UK – plus a $10.50 per share special dividend on completion, expected 25th October. CSC Surgeon-in-Chief Mike Lawrie will remain CEO of the Commercial business and will assume the role of executive chairman at CSC USPS.
This all makes perfect sense though my biggest wish is that the split will encourage Lawrie to be far more transparent on the Commercial business which he still runs more like jeux sans frontieres as there is no disclosure on geographical performance. Given that the Commercial business comprises 73 country market operations, investors deserve some clarity on the regional ebbs and flows.
As for the numbers, CSC’s headline revenues for FY15 (to 31st March) fell by 6% to $12.17bn. However the prior year’s $1.4bn operating profit turned into a $136m operating loss, including $261m in restructuring charges which will be used to ‘rebalance the workforce’. Following the split, Lawrie expects revenues in the Commercial business to run flat or slightly down in FY16, with the Global Business Services component growing slightly but with Global Infrastructure Services declining mid-single digits. Both are $4bn operations.
The question is, of course, is this just ‘Phase 1’?
Posted by Anthony Miller at '08:32'
The AGM statement from StatPro today marks another waypoint in the company’s long journey to the Cloud. Cloud revenues are now 20% of the total and Sales of StatPro Revolution continue to do well as new clients are added and with upsells to existing clients. The move to convert the users of lead product StatPro Seven to cloud-based services will be a key test for the next couple of years. See StatPro – focus needed in 2015.
New product modules are being introduced, in Risk Management and Performance, for StatPro Revolution and these should provide some defence against downward price pressure and add to the attractiveness of the cloud-based services.
After flat revenue and declining pre-tax profits for four years, shareholders must be wishing for faster progress and there is still a long way to go. However, the advances made in 2014 and the statement today shows that at least they are going in the right direction.
Posted by Peter Roe at '08:11'
Proxama’s full year figures came in right on the estimates published in February, with revenue of £0.8m and EBITDA losses of £5.6m. Year end cash was £5.5m so the company has some headroom to make progress in 2015. This should be a busy year as recent proximity marketing contract announcements have shown, see Proxama setting out its stall. Proxama has been engaged in many marketing trials (in malls town centres, stadia and on public transport) and these should drive a significant growth in activity and investment in Bluetooth beacon networks.
Another new contract has been announced, this time with the US Navy Federal Credit Union. This is a major win for the other side of Proxama’s business, the supply of services enabling the migration to Chip and PIN cards and to contactless payments via mobile devices. This business area was strengthened by the acquisition of Aconite during the year, see here, broadening the customer and product base and enabling some immediate cost savings. Proxama has (wisely) moved away from supporting Mobile Operators (like the unfortunate Weve) and is concentrating more on serving banks and card operators as they move to mobile payments and look for more secure technology.
After some trial and error, Proxama has now settled on its target markets and on its business model (where in Proximity Marketing, revenue will be largely driven by transactions, see Proxama playing the longer game). The company faces a major challenge to balance investment, cash flow and profitability as it builds a position in a rapidly growing, but competitive niche. This probably explains the decision by Neil Garner (founder, technologist and visionary) to step down from the CEO role as the business moves forward. His successor will certainly have an interesting time ahead.
Posted by Peter Roe at '08:08'
The latest trading update for Idox, the specialist information solutions provider, showed that the Public Sector Software Division is firing on all cylinders (revenues up by 14% compared with H1 14) while the Engineering Information Management Division (EIM) was adversely affected by market conditions (revenues fell by 28%). Overall Group revenues were flat when compared to the first half of 2014.
The Public Sector Division’s managed service and hosting offering continues to win new business. Pendle Council and Watford Borough Council selected Idox to provide a single integrated solution for their respective systems for building control, planning, environmental health and licencing. Providing outsourced delivery for the General Election boosted the coffers by £2m. Management also highlighted that the acquisition of Digital Spirit (see here) will deliver synergies as planned in the second half of this financial year.
In Idox delivers despite market challenges, we outlined the measures taken to improve EIM’s performance. The restructure at the turn of the year has delivered £3m annualised savings across the group.
Richard Kellett-Clarke, CEO of Idox commented “The Group has continued to advance on all fronts, apart from new EIM sales, but because of the efficiencies achieved we are confident of achieving a full year result in line with management expectations."
Public sector sales account for three quarters of Group revenues and the team will be launching an initiative in July to ‘open up new revenue opportunities’. The public sector will continue to be the growth engine as efforts to improve EIM continue.
Posted by Michael Larner at '09:59'
Civica continued to grow and evolve in 2014, with a particularly strong performance from the UK business. Results from privately-held Civica for the year to 30 September 2014 reveal total revenues increased by 3% to £220.1m, whilst UK revenues increased by 13% (8% organically) to £170.5m. Over the period Civica has also taken on almost 300 new employees and expanded its digital solutions, cloud and business process services (BPS) capabilities.
Civica has had particular success in business process services of late, reporting 68% revenue growth from this area of the market in FY14 to £19m. There was fresh evidence of this today with news that it’s signed a new 8.5-year deal with three Worcestershire councils. Under the contract, Civica will manage the customer contact centres, telephone and email services for Worcestershire County Council, Malvern Hills District Council and Worcester City Council. These customer services were previously provided by council staff through the Worcestershire Hub Shared Service (WHSS) and more than 50 staff will transfer to Civica under the agreement. Civica already has a strong footprint in the region as it operates a revenue & benefits shared service in South Worcestershire (see Civica local government BPS model gaining traction). We expect to see more of these focused BPS deals as local authorities look for fresh ways to save money – the WHSS contract is forecast to save the councils ‘up to £2.6m’.
Another focus area for Civica is digital solutions. It’s set up a new Digital Services division on the back of the Asidua acquisition (see here) and is building its capability in this area in both local government and central government. Civica has traditionally served the ‘local’ areas of government (local, education, health, police) but there are early signs that it’s making inroads in central government now too. With Asidua on board, it stands a good chance of winning business in the digital space, not least because it’s seen as smaller than the large SIs, but big enough to be a safe pair of hands for government projects.
Posted by Tola Sargeant at '09:59'
Fujitsu has had its FLEX IT infrastructure and services contract with the Office for National Statistics (ONS) further extended (it has already had one two year extension to February 2015). But no other details have been released. In March, ONS cancelled its Towers and SIAM procurement project (PRISE – Procurement of Replacement IT Service Environment) for the delivery of key IT services contracts. At the time it said it was considering its options with the Government Digital Service and Crown Commercial Service. Now, it appears the Treasury is also involved in the discussions, giving more credence to the view that the Treasury will be far more involved in the decisions of GDS and CCS over the next Parliament. There is clearly still much up in the air in terms of the Government’s Digital Agenda; not least we are waiting on the output from a McKinsey review into the potential value of a Government-as-a-Platform approach. This latest extension allows ONS time to await confirmation of central procurement strategies before setting out its own intentions.
The lack of detail revealed on the Fujitsu/ONS extension does beg questions over the Government’s Transparency agenda. According to government, “openness and transparency can save money, strengthen people’s trust in government and encourage greater public participation in decision making”. However, sometimes it feels like that government is only willing to be transparent when it suits i.e. when the actions taken ‘fit’ the stated strategy and direction. Moreover, suppliers are expected to be more open regarding their Government contracts, except when Government tells them not to be. It would be wonderful if the ‘transparency’ agenda was followed consistently. There are bound to be times when challenges present themselves and difficult decisions have to be made. But unless there is openness, and Government and industry understands what those challenges are, it will be very difficult for them to work together effectively.
Posted by Georgina O'Toole at '09:55'
I caught the first part of Infosys CEO Dr Vishal Sikka’s interview at yesterday’s equity analyst conference, where he was mainly questioned on how he was going to restore the company to its former glory.
Sikka has set himself the target to make Infosys a $20bn revenue company with a 30% operating margin by 2020. This is to be achieved by a combination of radical productivity improvement in the delivery of traditional services – particularly through automation tools – and by applying ‘innovation’ to pursue new project opportunities, for which ‘design thinking’ will play an important part.
In many respects, Sikka’s strategy reflects that of TK Kurien, his peer at Wipro across the road in Bangalore, who is aiming to drive growth with a 30% headcount reduction over the next 5 years (see Wipro and the irreducible core). In fact, it would be hard to believe that the CEOs of all of the top-tier India-centric IT services firms aren’t thinking along exactly the same lines. This will make differentiation – the cornerstone of Sikka’s strategy – as much a challenge for him as it will be for his peers.
But let’s reflect on his financial target.
Today Infosys is an $8.7bn revenue company growing at less than 6%, with a 26% operating margin (see Infosys misses, acquires and invests). To reach $20bn by 2020 would imply an 18% CAGR. I will be as bold as to say this is impossible to achieve organically. This because Sikka’s very strategy for the increasing use of automation tools and ‘innovation’ will result in lower-cost services for the customer, though – in theory at least – at higher margin.
The direction of travel is fine. The journey will be disruptive. The destination may never be reached.
Updated 21 May: It seems Sikka's 2020 margin target is 30%, not 20% as previously stated in the original version of this post. Frankly those days are over for Infosys - unless Sikka has the intention of turning the company into a software pure-play!
Posted by Anthony Miller at '09:47'
The UK market is proving a real hunting ground for Accenture in its quest to dominate in the digital services space.
Following up on its London-based Salesforce.com consultancy Tquila earlier this month (see here), it is now taking over London-based Javelin Group, a specialist retail strategy consulting and digital transformation services provider.
Although terms of the deal weren’t disclosed, Javelin is another medium-sized bolt-on deal for Accenture, employing 160 people across offices in London and Paris. The business is being integrated into Accenture Strategy, Accenture’s technology-enabled strategy division, which brings together business strategy, technology strategy or operations strategy, to design future operating models for businesses.
Javelin will provide additional services capabilities for retailers like digital market assessment, digital performance improvement, omni-channel retail planning, retail analytics, supply chain fulfilment and operations. It also provides digital technology consulting and systems implementation and support services. Javelin therefore seems a natural fit with Accenture Strategy’s approach to provide vertically focused business and technology operations strategy.
Accenture is right to be investing in retail right now. It is a hot space as retailers are forced to transform their businesses in the face of a perfect storm of online competition, and new multi-channel technologies that are now demanded by consumers (see Why is Digital Customer Experience key to future BPS delivery?).
Javelin should present plenty of opportunities for Accenture to support customers on their digital journeys, transforming from legacy to new omni-channel operating models. However Accenture will need to be careful to ensure that the strengths of Javelin's brand and differentiation are retained.
Posted by John O'Brien at '09:40'
Following full year results showing a 29% revenue decline and a significant increase in costs, we suggested that 2015 would be a crucial year for cloudBuy. This follows its bold policy of exploring markets across Asia and more recently in North America for its e-commerce and B2B buyer and supplier solutions. (See cloudBuy needs to deliver).
Today’s positive AGM statement also includes a new contract with the Ministry of Economy in a Middle-eastern state for an e-commerce website, valued at US$850k, with the promise of additional revenue as other organisations link to the site. The Confederation of Indian Industry has also launched its e-commerce portal, set up to link small and medium sized services companies. The Hong Kong marketplace is in user acceptance testing and the Singapore marketplace is set for launch in 2015.
Certainly, there is a lot going on across cloudBuy’s extended operation, and the new opportunities bring much to be optimistic about. In addition, the Group had £4.5m in the bank at the year end and so has breathing space. Nevertheless, these operations will take time and careful management to get up to scale and profitability. This is a crucial time for cloudBuy.
Posted by Peter Roe at '09:36'
After founding the business in 1989 and identifying the opportunity for standardised risk management and regulatory compliance solutions, John Wisbey is stepping down as Chief Executive and director of Lombard Risk Management. He is setting out to “pursue other opportunities” and perhaps we may learn more about his decision when the full year results are announced on Thursday.
The company states that the results will be in line with the March statement and that trading in the current year has been “satisfactory”. It is disappointing that Mr. Wisbey will be leaving as the company reports on a poor second half as revenue shortfalls and contract delays hit the company bottom line for the second time in recent memory, see Regulator and contracts trip up LRM, again.
Nevertheless, the business and the underlying model he leaves behind appear secure and should be able to capture its fair share of the significant growth expected in Risk and Compliance. Mr. Wisbey will retain his 38% holding in the company for the time being.
Posted by Peter Roe at '09:33'
Proxama, the specialist proximity marketing and card issuer solutions company, will issue its results for calendar 2014 tomorrow. These are expected to show flat revenue, at less than £1m and increasing EBITDA losses, to more than £5m. Despite this starting point the management were optimistic about significantly improved performance in 2015, see Proxama sets itself a challenge…..
The key driver of success in the company’s proximity marketing business will be the initiation of projects using their technology as their business model is wedded to the number of transactions executed over their Bluetooth Beacon networks. Progress has been made here as seen in two recent contracts, one is with Exterion, to enable proximity marketing services to be delivered to users of public transport and the other with Eye Airports, with a planned installation of beacon networks in eight airports, including London Gatwick. Proxama’s cause will also be helped by a £1m grant from Innovate UK to enable the roll-out of the company’s Loka mobile application to enable merchants to deliver marketing messages over Bluetooth beacons.
These deals and grant should give Proxama additional confidence, and momentum, as it sets out to deliver on its potential. We should learn more tomorrow as the results are published.
Posted by Peter Roe at '09:30'
AIM-listed accesso Technology Group appears to be continuing to ride high on the desire of the Great British public (as well as international customers) to avoid queuing at leisure attractions (see accesso Technology: at the heart of the digital guest journey).
In its AGM statement highlights a strong start to the year (4 months to end April) “on a number of fronts”. Good trading appears to have been supported by some of the Group’s larger customers reporting “excellent early results”. In total, the Group has signed 42 new contracts over the period with a mixture of new and old customers. It has also expanded its pipeline.
It’s great to see a company providing a solution to a genuine problem; no-one wants to spend an exorbitant entrance fee to a leisure park and then spend all day standing in a queue. accesso has tapped into that and designed a business model that allows for transactional and repeatable revenue streams. There is also plenty of opportunity to cross-sell and up-sell with existing clients, while also opening up previous untapped adjacent verticals through acquisitions. Onwards and upwards (though hopefully it can leave the scary loop-the-loops to its end customers...)
Posted by Georgina O'Toole at '09:18'
Insurance software and BPS provider The Innovation Group has seen a 39% drop in first half software revenue.
After warning last month (see TIG warns on delayed H1 software revenues), software revenue fell to £5.7m in the six months to 31 March, and divisional EBITDA losses were £2.8m vs. break-even last time.
Three significant software deals were pushed beyond the H1 period end. Two of these have now been secured (see here), but we still await the ‘biggie’ that TIG has been anticipating, worth tens of millions of pounds.
But that's not all the story. Software MD Paul Nichols has also been restructuring the software business to turn it from one focused on three distinct geographic regions, into a single global business. This involved investments in new sales and delivery personnel and new standardised global processes. There are new systems integration partnerships too with Deloitte and IBM, and plans to build a network of distribution partners, plus a healthy pipeline. This is all encouraging and should pay dividends from H2.
TIG’s much larger operating division Business Services, under the stewardship of former FD Jane Hall, grew 20% in constant currency (ccy) to £107.1m (and 7% organically). TIG has been making acquisitions in this space over the past year (see here and work back), which have helped it expand its services across fleet, service plans, roadside, and wet perils. Business Services is proving a resilient and profitable division with margins of 19%. It clearly enabled TIG to achieve 14% top-line growth (ccy) to £112.8m, and stable adjusted PBT margin of 10%.
Geographically, the UK is now TIG’s largest and fastest growing market, up 24% to £31.1m. And with a 25% EBITDA margin it is also the most profitable. TIG is doing many right things in the UK - notably its focus on wet and dry perils and more recently motor repairs. Here it is no doubt benefitting from the demise of Quindell (see here).
Posted by John O'Brien at '08:36'
To be honest, our Peter Roe said what needed to be said when energy-sector focused engineering data and design software developer, AVEVA Group, previewed its FY results last month (see Aveva looks to meet “market expectations”). As this was some 3 weeks after FY close, not much prescience was required and indeed the numbers came in pretty much as expected, with headline revenues down 12% at £209m and ‘adjusted’ pre-tax profit falling 21% to £62.1m (price of oil and all that).
The only frisson of excitement came yesterday when bid speculation – naturally denied by management – saw AVEVA’s share price jump 9% to £20.00.
I merely echo Mr Roe’s succinct sentiment that longer term expectations are largely dependent on the revival of the oil and gas markets and the return to growth (or at least investment) in the emerging markets. Could be a long wait.
Posted by Anthony Miller at '08:31'
The third annual TechMarketView Presentation & Dinner, sponsored by Wells Fargo Capital Finance and Avnet Technology Solutions, is to be held on 9 September 2015 in London at RIBA, Portland Place from 6pm onwards. We’d love to see you there. The event was completely sold out last year so don’t leave it until the last minute – book your place now!
The theme for this year’s event mirrors TechMarketView’s overarching research theme for 2015 - ‘Joining the Dots’. Top of the agenda will be the opportunities and challenges for technology suppliers as the number of ‘things’, datasets and systems that need to be joined together grows.
During the evening TechMarketView’s analyst team, topped and tailed by Chairman Richard Holway MBE and Managing Partner Anthony Miller, present their latest views on the UK software, IT services and business process services markets. TechMarketView’s research directors will highlight emerging trends, hot new opportunities, growing threats and suppliers worth watching, in their respective fields.
The analyst presentations will be preceded by welcome drinks and followed by a pre-dinner drinks reception and then a sumptuous three course dinner. The event, which is attended by ‘the great and the good’ in UK tech, has been a sell-out for the last two years and the networking opportunities are second to none.
Tickets for the event cost £395+VAT per person for TechMarketView subscription clients and £495+VAT for everyone else. There are also some tables of 10 available on a first come, first served basis.
To reserve your place at this year’s TechMarketView Presentation & Dinner click here or contact Tina Compton (Tel: 020 7331 2011) at techUK, who is organising the event for us.
The TechMarketView Presentation & Dinner 2015 is sponsored by
Posted by HotViews Editor at '15:43'
The good news – of sorts – from AIM-listed geospatial software-led firm 1Spatial was that revenues rose in FY15 (to 31st January) by 14% to £19.6m, and net losses narrowed by 30% to £1.5m. The not so good news is that management was ‘disappointed’ with revenue growth, which is likely to remain depressed as ‘revenue-generating resources’ are re-allocated to R&D to boost platform development and integration.
1Spatial remains a rather fragmented company, both geographically and structurally, with legacy businesses Storage Fusion and Avisen still operating independently under the covers (see Avisen, 1Spatial – will three reverses engage forward gear?).
The geospatial market should be a good place to be. It’s just not clear, to me at least, whether 1Spatial's management has worked out how to make it a good place for them.
Posted by Anthony Miller at '10:03'
Field service management software specialist ServicePower Technologies has announced a strategic partnership for the insurance adjuster marketplace with one of our Little British Battlers Concirrus (see here).
Concirrus provides internet-based machine-to-machine systems including solution design, (contract) hardware manufacture, application development, network connectivity, right through to hosting the back-end software (via Amazon Web Services).
The partnership is a good example of our Joining the Dots theme. Data flowing into the Concirrus IoT platform is instantly analysed with issues reported to ServicePower's field service management software. For example, the software will schedule appointments for an insurance adjuster, re-optimise his schedule plus send a detailed incident report to his handheld device. Andrew Yeoman, Chief Executive Officer, Concirrus, stated "ServicePower provides us with the last critical step in providing an end to end solution for businesses, particularly in the insurance sector”.
Improving the effectiveness of mobile workers is critical for firms as they try to eradicate downtime; field management software suppliers must continue to evolve their product capabilities in order to remain competitive. ServicePower is already embracing M2M connected services (see ServicePower tackles M2M for security systems) by developing analytics capabilities to model failure data on behalf of a US-based home and commercial security systems company.
FY14 (to end December 2014) was tough for ServicePower (see here) with revenues dropping from £14m to £12.7m and losses of £877k at the operating level from a profit in the previous year of £210k. The partnership with Concirrus will accelerate the development of ServicePower’s offering and has the potential to be repeated in other verticals. ServicePower’s shares are up by 11% at time of writing.
Posted by Michael Larner at '09:55'
Microgen, the Big Data and Financial Services software company is resolutely soldiering on, albeit without its Chairman, Martyn Ratcliffe, who will retire as a Director in six weeks’ time.
The AGM statement reveals that trading is ahead of the comparable period in its last rather uninspiring last year, where revenue was flat and pre-tax profit down a third. “Highlights” included another handout to shareholders and a small acquisition. Rather more pleasingly, there was some progress on the new product front with the Aptitude Revenue Recognition Engine and a Trust and Fund Administration product. See here and work back for our comments on the last year and Microgen’s Strategic Review.
Management also discloses that the company has turned down an approach from a Private Equity house for the Aptitude Software business. Terms were not disclosed. This deal and the management’s response underline two things; firstly that there is value in the constituent operations, and secondly that the management has a responsibility to deliver this value to shareholders. They will be looking for clear direction and a faster rate of progress over the coming year.
Posted by Peter Roe at '09:55'
We had already been warned about the disappointing second half as this supplier of solutions to retailers to enable mobile commerce lost momentum after its December 2013 listing, see here and work back.
Lengthy customer on-boarding processes and low lead conversion rates, coupled with the need for more product upgrades as customer requirements evolved resulted in poor revenue figures and higher costs for MoPowered. 2014 revenue was only10% up on 2013, at £1m, with gross margins falling to 26% and losses mounting to £5.5m (vs £3.6m in 2013). Additional cash had to be raised during the year to fund an operating cash burn of £4.1m, with year end cash totalling £1.3m.
However, much is changing as the company attempts to get back onto a growth track. Another placing, for £3.1m has been launched. Half of this is to be used to buy a digital marketing agency, Fast Web Media (FWM) and the remainder used to develop a SaaS platform, using newly acquired resources within FWM, to speed customer acquisition and standardise the service.
In addition, a partnership has been announced with the Norwegian company Cxsense to licence its SaaS products, with this cemented by a share swap. Dominc Keen, the CEO and Founder will stand down. To cap it all, the company is changing its name to mporium Group plc.
As mobile commerce continues to grow rapidly, there is considerable demand for the capability that the newly-baptised mporium can bring, but as before, the company has to prove itself in an increasingly competitive market where it has lost ground over the past year. A speedy realisation of all the announced changes, some visible and meaningful contract wins and some good news flow is required to inject some momentum into the company’s progress.
Posted by Peter Roe at '09:49'
If experience is anything to go by it’s that generating profits and cash are surely top priorities for a successful business. Unfortunately, Analytics-as-a-Service provider Actual Experience (AE) hasn’t managed that yet.
Adjusted operating losses for the six months ended 31 March more than doubled to £1.01m (vs. -£382k last time), despite revenues growing 21% to £329k. Almost £1m in cash went out of the business leaving AE with £2m - less than half the £4.1m raised at its February 2014 IPO (see It’s the experience, Actually). Losses per share were 3.12p, worse than the 2.51p last year.
AE provides a cloud-based analytics service offering, which can provide both historical and real-time analysis to customers to enable them to pinpoint issues within their digital supply chain (e.g. business applications, third party providers, the internet, the IT department).
AE is in a hot space (hence the high growth) where demand for insights on performance is high among enterprises investing in digital technologies and services. At the same time it achieved its biggest win to date, a three-year contract with a global organisation to analyse its digital supply chain.
It’s the bottom line that needs real help due to continuing investments needed in the product and sales teams. AE is now shifting from a direct to an indirect sales model, using channel partners to drive both revenue and gross profit. While this the right move to grow its market penetration, there are risks, from longer sales cycles and potentially onerous demands from partners.
Meanwhile, new competition is coming through, introducing advanced real-time predictive and prescriptive analytics techniques already with channel partners lined up (see LBB Logical Glue - bringing analytics into the 21st Century). Plenty more lessons ahead for Actual Experience.
Posted by John O'Brien at '09:19'
FY14 results from co-location, hosting and cloud provider, Pulsant, show pro-forma revenue up 4% to £45.3m with EBITDA (before exceptional items on a normalised basis) up 2% to £16.3m. The numbers were impacted by the loss of two of its largest clients (one a managed hosting provider and one a major bank). Both of these have left Pulsant to set up their own data centre facilities – i.e. there was not an issue with the contract/service quality per se. One of these customer losses mainly impacts the 2014 results and the other will mainly impact 2015.
For comparison, Pulsant grew 12% in FY13 to £43.7m (and +17% in FY12), while EBITDA (before exceptional items) increased 23% (and by +25% in FY12) - see Pulsant sustains double-digit growth.
Looking deeper into Pulsant’s current customer base, there are no other major contracts due to end in the near-term, and the loss of these two major clients does appear to be an unfortunate coincidence in terms of timing. Pulsant expects to get back into double-digit growth in FY16, something that should be possible given the markets in which it plays.
Of course, Pulsant also had to manage the major distraction of its sale by backers Bridgepoint Capital Development to US private equity firm Oak Hill Capital Partners and Scottish Equity Partners. We know just how time-consuming and challenging this process can be and suspect this might also have impacted the financial performance.
There is little (if anything) Pulsant could have done to retain the clients that moved on given the circumstances. The remainder of 2015 is looking a lot more stable so we’d be very disappointed if 2015/2016 didn’t see the company heading back to FY13/FY12 levels of growth.
Posted by Kate Hanaghan at '09:01'
Last month’s trading update (see here) had already braced the market for a depressing set of FY results from AIM-listed video search technology firm Blinkx after it all went horribly wrong in H1 (see ‘Transformational period’ for video star blinkx). As a result, headline revenues (to 31st March 2015) fell by 13% to $215m and the prior year’s $12.2m net profit transformed into a $20.8m net loss. Net cash ended some $30m lower at $96m, primarily spent on acqusitions.
If you take the time to read through CEO S. Brian Mukherjee’s assessment of what went wrong and what he is doing to fix it, the underlying strategy makes sense. Basically, the video advertising market – for which Blinkx’s products are meant to be the technology engine – has materially and rapidly shifted away from desktop to mobile, and from manual to programmatic trading, catching management on the hop. To add insult to injury, both these trends are margin depletive.
To try to get the product set pointing back in the right direction, Mukherjee has acquired fast and furious (e.g. see Blinkx hopes AdKarma will bring good karma) and created a unified go-to-market brand, RhythmOne, for its nine (!) sub-brands. Hence Mukherjee sees FY2016 as a ‘year of integration’ which he hopes will herald a return to growth, though profits may remain elusive.
With plenty of cash still left in the bank and low operating cash burn, Mukherjee will not have to worry about paying the bills. But it would be wise not to underestimate the challenge of aligning nine disparate cogs onto a single axle and have them all spinning smoothly in the same direction.
Posted by Anthony Miller at '08:44'
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