After a recent spell of new contracts and extensions (see here and work back), The Innovation Group (TIG) has delivered another buoyant performance in H113, albeit slower than this time last year.
Revenue for the six months ended 31 March was up 5%, or 8% in constant currency to £99.8m, vs. 14% ccy growth in H112. Organic growth was 2% after stripping out the October and November acquisitions of Innovation Connect Enterprise in France, Sachcontrol in Germany and InFront Solutions in the UK (see here). TIG has continued with the acquisitions since the start of H2, taking on board motor claims handler Gemini Vehicle Solutions (see here). Operating margins are also on the rise, at 6.6% vs. 3.4% last time.
TIG’s growth is coming from business process services (BPS), where revenue was up 6% to £88.5m. Software revenues meanwhile were flat at £11.3m. But looking ahead, there is more positive news on the software front following recent licence wins with tier two US insurers Homesite and GuideOne (see here). It also won a BPS deal in the US with Austin Mutual Insurance. So we would expect the US to grow its share of group revenues in the second half. However, it still has some work to do turn the US business into profit - it was on the only region in the half to make a loss. TIG faces another challenge in the Asia Pacific market, where revenue fell 10.7%, although it is unclear at this stage what caused the fall.
The UK, TIG’s second largest market after Germany, saw revenue growth of 9.7% to £21.5m, and delivered an EBITDA margin of 20%. So all looking good in the domestic market.
Posted by John O'Brien at '08:01'
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Manchester-headquartered, Microsoft-platformed, self-styled independent pure-play Cloud Service Provider, Outsourcery, is to list on AIM on Friday with a placing that will raise £12.7m gross and value the company at £34.6m. Outsourcery had revenues of £3.6m in 2012 and net losses of £10m. Says it all, really. But this is a world where people pay a billion dollars to buy $13m in revenues so why should we be surprised?
Outsourcery had its genesis literally in Genesis Communications, acquired from DSG ('Dixons') by Outsourcery founders Piers Linney and Simon Newton back in April 2007. They went on to acquire a small Microsoft hosting business, and a few other bits including the Thus Mobile mobile voice and data reseller business from Cable & Wireless. After much sprinkling of magic dust appeared Outsourcery.
Management have laid out their key performance indicators (KPIs) that they will report on a regular basis. One notes that profits and cash do not appear to be among them.
Let's see how the launch on Friday goes.
Posted by Anthony Miller at '07:54'
Telco-focused India-based IT services player Tech Mahindra (TechM) closed its FY (to 31st March) with a 25% leap in Q4 revenues, to $353m, 7% higher than in Q3. It has to be said that the yoy 'comps' weren't tough as TechM had a pretty sordid Q4 the prior year, but the company certainly made up for it after that. FY revenues ended 9% higher at $1.26bn, with an operating margin of 20.7%, 4 points higher than the prior year.
Now we wait and see what the oft-delayed integration with sibling Mahindra Satyam will bring. Both companies appear to be in their stride (see Mahindra Satyam turnaround 'practically complete') so the onus will weigh heavily on management to keep the momentum going. The two companies are of similar size but different 'shapes' so it will require deft hands to meld the two into one.
Posted by Anthony Miller at '07:26'
We’re sure the sighs of relief must have been heard for miles around Triton Square when Atos got news that it had been successful in its bid to retain its longstanding BPO contract with National Savings & Investments (NS&I)! Retaining NS&I as a client was a key pursuit for UK CEO Ursula Morgenstern and her team, as they sought to hold on to the biggest deal that Atos inherited from its Siemens Business Services acquisition.
The formal retender of the outsourcing contract (customer facing and back office services) began in 2011 and in February last year Atos was short-listed against Capita and HP for the contract. It is testament to Atos that it won the deal in a public sector environment where being the incumbent on a deal is no longer any guarantee of success at re-competition (indeed it sometimes appears that the opposite is true). According to Atos the Cabinet Office was involved throughout the tender process and gave full approval to the final decision by NS&I’s Minister, the Economic Secretary to the Treasury, Sajid Javid MP.
NS&I first outsourced its operations to Siemens Business Services in 1999 in a ten year deal, which we believe was worth in excess of £1b. It was subsequently extended to 15 years. NS&I estimates that its core operating costs have been reduced by 15% as a result of the contract (some £530m in cost savings). The operational services outsourced included all processing of customer interactions and servicing and IT management aspects of the business. The new contract is expected to save NS&I £400m over the seven year deal by, for example, focusing on digital channels as NS&I undergoes a major transformation. Though the initial announcement provides no contract value, the deal (over seven years) is thought to be worth around £660m.
Winning this deal sends out a strong message about Atos’ ability to deliver major BPO contracts and underlines NS&I's confidence that it is capable of undertaking a large-scale transformation. NS&I only employs 100 people internally (in strategy and policy); everything else is outsourced (apparently successfully!) to Atos. Atos can now pursue its BPO ambitions in the UK public sector with NS&I as a key reference. We understand that some other government organisations such as HM Court Services already utilise some NS&I processing services; with NS&I now in the spotlight as a success story, we suspect we might see Government look more closely at NS&I as a potential provider of shared services to other public sector organisations.
Posted by Georgina O'Toole at '22:31'
Skyscape Cloud Services has announced that it is the beneficiary of the largest contract let through the UK Government’s G-Cloud framework so far. The company has been selected by the Home Office to provide services to the Disclosure and Barring Service for Platform-as-a-Service (PaaS). The contract has an estimated value p.a. of £1.5m and the service is due to go live in early 2014.
PaaS is the off-premise provision on a pay-for-use basis of a development and deployment environment to allow developers to code and deploy applications (See UK SITS Market Trends & Forecasts). Home Office CIO Denise McDonagh, who is also the G-Cloud Programme Director, states that the department considered a major service integrator as well as other G-Cloud offerings before selecting Skyscape. Indeed, suppliers large and small list PaaS offerings on the Cloudstore. Despite Skyscape being an SME, departments and agencies are provided with a comfort blanket as Skyscape delivers its services with technologies from major technology providers such as Qinetiq, VMware, Cisco, EMC and Ark Continuity. Skyscape has also had its G-Cloud services accredited up to Impact Level 3 this making them suitable for handling sensitive information.
Skyscape has been one of the more successful suppliers on the G-Cloud framework (Cloudstore). It won one of the first significant IaaS deals (see Skyscape wins first major Cloudstore IaaS deal) in September 2012, which it swiftly followed with another deal with HMRC for centralised data storage (see Skyscape wins Cloudstore deal with HMRC). It now claims to have over 100 projects across central government, local authorities, police, healthcare and other publicly funded bodies. This latest deal is another great win for Skyscape. But let’s not get carried away; it still only represents a Government department touching the edges of its activities for a move to the cloud. We are still a long way from cloud services being the norm for core ICT operations.
Posted by Georgina O'Toole at '21:32'
Thanks for the emails resulting from my quotes in Murad Ahmed's article in The Times today on the Yahoo/Tumblr acquisition (See - Will Tumblr make Yahoo 'cool'?). I didn’t realize my dancing was THAT bad…
The Times - “This is like when a grandad starts dancing at a party,” Richard Holway, chairman of TechMarketView, the industry analyst, said. “The kids are horrified and will move away. It can be difficult chasing being cool.”
Just a few more that caught my eye
“Tumblr has been represented by Frank Quattrone, the famed Silicon Valley dealmaker from Qatalyst Partners.” Holway comment – interesting that the last major acquisition involving Quattrone was representing Autonomy when they were bought by HP.
The Independent – “Popular Tumblrs include "Awesome People Hanging Out Together" (where you can find a genuine photograph of Weird Al Yankovic drinking orange squash with Run DMC),"Things Organised Neatly" (slices of toast arranged in order of burntness) and "Kim Jong-il looking at things" (no explanation necessary).”
BBC website – “The site's terms of service say sharing of explicit pictures is fine - as long as it is clearly labelled as NSFW”. Holway comment – Anthony Miller didn’t know what NSFW meant so Googled it. He then sent a warning to everyone in TMV not to repeat the action. NSFW means ‘not safe for work’.
AFP - Roger Kay at Endpoint Technologies said .."paying $1.1 billion for a company with $13 million in revenue seems a little nuts to me... Those numbers aren't even earnings, which are surely negative. So, even if Tumblr survives intact, Yahoo is unlikely to get its $1.1 billion back over any interval that falls within a human lifetime."
David Karp – CEO of Tumblr – “Let me try to allay any concerns: We’re not turning purple,” he said, referring to Yahoo!’s distinctive purple branding. Our headquarters isn’t moving. Our team isn’t changing. Our roadmap isn’t changing”. Holway comment – “Who’s kidding who?”
BBC website – “Wordpress - a rival blogging platform - reported that more than 72,000 people imported their Tumblr blogs to Wordpress in just one hour on Sunday evening.”
Holway repeats comment – “The kids are horrified and will move away. It can be difficult chasing being cool.”
Posted by Richard Holway at '16:04'
Slightly outside of our 'space' but nonetheless worthy of note, UK-headquartered 'gaming platform' company Quixant launched on AIM today at a placing price of 46p, valuing the company at £30m. Quixant, founded in 2005, develops specialised PC-based hardware and software for the global gaming industry. Manufacturing is in Taiwan. Quixant had revenues of $21.6m in 2012, with pre-tax profits of $5.0m. Frankly that looks like a pretty good margin to me for a hardware-led player! Quixant shares are up 5% as I write.
Posted by Anthony Miller at '09:32'
Capita is revising upwards FY13 organic growth expectations after being selected by mobile operator O2 as preferred bidder on a £1.2bn ten-year customer management deal. O2 will become Capita’s second largest ever contract after Staffordshire County Council which it won last November (see Staffordshire £1.7bn megadeal Capita’s largest ever).
Capita said it has now secured £2bn worth of major new and extended contracts in 2013. This is up from £660m announced just last week, when Capita said it had had a ‘positive start’ to 2013 (see here). Capita now expects FY13 to show ‘greater than anticipated organic growth’ of at least 8% in FY13, compared to 3% last year.
This is a really impressive uptick in business in such short time. Investors responded by pushing Capita’s shares up c7%.
Among the new wins is a £154m ten-year 'development and regulatory services' contract at Barnet Council where Capita is now preferred bidder. This adds to its recent IT/BP win at Barnet, which got the green light to start this month (see here). If all goes to plan Capita will take on Barnet’s support services in October covering highways management, planning, development and regeneration and environmental health and trading standards. This is the kind of work support services companies like Serco, Balfour Beatty, Carillion and Mouchel take on, and is another growth opportunity for Capita as it seeks to expand its footprint within local authorities. Capita’s strategy is however not without its drawbacks (see our BusinessProcessViews report IT-enabled support services: opportunities in a converging space).
The big O2 win meanwhile is going to contribute c£120m in revenue annually to Capita. The deal does however build on an existing long-term partnership, so it isn’t clear exactly how much of this will be entirely new money. Although we understand 2,000 O2 people will be transferring to Capita under this new contract, which is expected to start on 1 July.
Capita’s news underlines an improving outlook we are seeing for UK BPS providers across both the UK public and private sectors, setting the scene for a very buoyant 2013 (see General insurance BPS opportunities in a rapidly changing market, and Business process services opportunities in UK central government).
Posted by John O'Brien at '09:08'
It's a big news day for three of the India-centric offshore services 'majors'.
California-headquartered but India-centric IT services firm iGate has sacked CEO Phaneesh Murthy "as a result of an investigation by outside legal counsel, engaged by the Board, of the facts and circumstances surrounding a relationship Mr. Murthy had with a subordinate employee and a claim of sexual harassment". The board has brought back Gerhard Watzinger to run the business pro tem. Watzinger is currently chairman of California-based cyber security firm Crowdstrike and had previously held senior executive roles at iGate. Murthy was appointed CEO in 2003 by virtue of iGate's acquisition of Quintant Services, founded by Murthy. He started his IT career at Infosys and left in 2000 under controversial circumstances.
The Indian media is also buzzing with the expectation that HP is to sell off its majority stake in Bangalore-based Mphasis. If so, this should come as absolutely no surprise at all to regular UKHotViews readers (see Mphasis drifts further from HP and work back). HP is due to report its Q2 results tomorrow so perhaps all will be revealed then. Mphasis is still separately listed in India (part of the 'problem') and reports its Q2 results a week later. You may be sure we will have much to say.
And finally, it seems that Bangalore-based Wipro has quietly ditched its attempt to conquer the Indian tablet market. Media reports suggest that the E.Go Sense tablet – launched in 2010 – is no longer to be seen in the retail market, though the product is still featured on the company's website. Wipro has made no formal announcement that it has discontinued the product. Wipro, like Noida-based peer HCL Technologies, had its IT roots in the Indian hardware market, where both companies are still formidable suppliers, HCL mainly via its separately listed sibling company, HCL Infosystems. Wipro recently demerged its IT business from the founding consumer products business (see Wipro demerges (finally)).
Posted by Anthony Miller at '08:57'
As presaged a week ago (see here), IT recruitment firm-cum-digital media star Parity is to raise £7m gross in a share placing to finance future digital media acquisitions. Management also confirmed the move of its Main Market listing to AIM. Parity made its first acquisition almost exactly a year ago, buying Shoreditch-based, self-styled “pioneering creative 3D technology company”, Inition, for £3.75m (see Parity buys into its digital dream).
This will be the third fund raising exercise that top team Philip Swinstead and Paul Davies have undertaken since taking back the reins in June 2010, and brings the total raised so far to around £15m. The latest placing will be at 27p, a 23% discount to the prior close, and will dilute existing shareholders' stakes by nearly 26%. Parity's shares closed 3% down at 31p after the news, valuing the stock at £23m.
Is this all a cause for celebration? After all, when Swinstead and Davies took back control, Parity's shares were trading at around 8p. At the end of that year the shares started a rapid climb to hit 33p in April 2011, but then went into graceful decline for nearly two years, ending 2012 at 19p. Then started a miraculous recovery which saw Parity's shares surge to 45p in early May, only to be deflated again by news of the latest placing and move to AIM.
You can argue the case that what management is aiming to do is create shareholder value and that is surely a 'good thing'. But where they are looking to do this is not with Parity's core recruitment business, but by funding and incubating an unrelated venture which will likely take on a life of its own should it become successful. Does it matter? If investors can get their money back and more, maybe not. But it rather begs the question as to where Parity might be if management had applied its energies and fundraising abilities to the core recruitment business.
Posted by Anthony Miller at '09:32'
In the latest edition of TechMarketView OffshoreViews, we look at the issues raised by the proposed US immigration reform bill and the potential impact on the offshore services industry.
We also give our frank opinion as to why Infosys and Wipro are suffering a severe case of the 'Bangalore Blues', with headline growth rates lagging those of major peers. Our views are unlikely to win us many new friends in the state of Karnataka!
Then we bring you more on Nashtech, the Vietnam-based offshore IT services arm of UK-headquartered recruitment firm Harvey Nash, and its recent tie-up with Japanese industrial conglomerate Mitsui & Co.
Plus we bring you our usual review of the financial performance of the key India-centric players both globally and here in the UK.
It's essential reading and only for eligible TechMarketView subscription service clients, who can download OffshoreViews here. Others should contact Deborah Seth on our client services team to find out more.
Posted by HotViews Editor at '08:20'
I was going to wait until the news was official, but there are already 448 news items announcing that Yahoo will today (according to 'reliable sources') buy Tumblr for $1.1b cash. Tumblr is a social microblogging site very popular with ‘young people’. Indeed, Tumbler was created by David Karp when he was 20 in 2007. He’s now a really old 26 year old. For an amusing description, read the Time article What is Tumblr?
Many people have asked me if we are living through a rerun of those crazy 1999 ‘dot.com’ days. As an analyst I was then told to suspend all notions that companies should be valued on profits or even revenues. Eyeballs was all that matters. With Tumblr, the same seems to apply. Tumblr has minimal revenues of $15m but hosts 108m blogs with 51 billion posts.
$1.1b is an awful lot of cash – particularly for a company that doesn’t have very much. To me, it’s a ridiculous amount to pay for a company with $15m of revenues.
Marissa Mayer, Yahoo’s ‘don’t dare work at home’ new CEO, believes that Yahoo’s main problem is its ageing client base (ie me) and that it isn’t considered as ‘cool’. Tumblr is currently the essence of ‘cool’. But, as we all know the fastest way of making any company uncool is to get it bought by an old company trying to become cool. (Why is it that however good my ‘moves’ are, my grandchildren always start laughing uncontrollably when I start dancing?)
Getting a ‘cool’ mantle is certainly very good for business. The cool mantle in smartphones has shifted from Apple to Samsung with pretty significant shifts in valuation for both players. Interestingly, Facebook has already lost its ‘cool’ as the all important 16-24 age group is starting to abandon it in droves. Indeed there is a lesson for Yahoo here. Many of Facebook young users say that they don’t want to belong to a social network where their granddad is also a member. Indeed, they don’t want social networks at all – they now want social messaging on their smartphones- like WeChat, WhatApp, iMessage. See my post Has Facebook lost its cool?
Just to show how ‘uncool’ Yahoo is, this granddad is a long term and regular Yahoo user – and a shareholder too!
Posted by Richard Holway at '07:21'
The weak Q114 Autodesk forecast when it reported its end of year results has been realised with revenue at the bottom end of its own guidance as it saw weakness in performance across most of the regions it operates in.
Revenue was down 3% yoy to $570m, with net income dropping to $56m from $79m. A promotion that took $24 from H114 did not help the Q1 numbers. The operating margin fell from 16% to 14% yoy. It dropped to 14% in Q4 so the company has maintained the margin on a sequential basis. Against that background a decline in licence revenue is not surprising but the 9% drop was surprisingly large. Subscription revenue was up 6%. This reporting line covers maintenance and cloud services (e.g. the 360-badged products such as Autodesk 360 and PLM 360) so cloud performance is not discernable. However, the bulk of the revenue is still from maintenance. Overall performance lags Aveva and Delcam however (see here) but they benefit from a tight focus.
The provider of 3D design, engineering and entertainment software has products in the right places but overall market demand is low. As well as covering traditional verticals like manufacturing, construction and energy, for example, it has a strong footprint in media and entertainment (where its 3D capabilities play well in the film sector). It has taken process-intensive functions like simulation and rendering to the cloud, which will attract a wider base who would not previously have been to afford them, and it is anticipating additional business from the 3D printing movement. UK MD and VP of the ENI unit Peter Baxter says the UK is a strong market with activity in the manufacturing and construction markets. That suggests it is doing better than EMEA overall where revenue declined 4% in Q1. But at group level the volume of sales is not there and cloud services have yet to take off.
Posted by Angela Eager at '09:32'
They may prefer to call themselves 'IT solutions' suppliers, but when not one single question was raised about services on their results conference calls, you know how investors really look at Dell and Cisco.
But that's about where the similarity ends, as the results and the trends could be no different. Whereas yesterday's Q3 results from Cisco were framed around 'record' revenues and profits, Dell's Q1 results were mainly framed around the negatives; headline revenues were down 2% to $14,1bn, operating profit crashed by 73% to $226m, and EPS plummeted 81% to $0.07.
Dell's problems lie mainly in its End User Computing division (71% of revenues), which saw a 9% decline in revenues and a 65% fall in profit as the company slashed prices to try to breathe some life back into its 'Mobility' business (laptops, notebooks, tablets), where revenues fell by 16%. No doubt Windows 8 didn't help (see Dell, Windows 8 and poor forecasts), but I also doubt that the next iteration due for preview in June (see here) will provide a miraculous recovery.
Dell's Enterprise Solutions Group (servers, peripherals, networking, storage) was quite a different story. Revenues grew by 10% to $3.1bn and operating profits soared 71% to $136m, a 4.4% margin. Surely Dell's prospects lie fairer in the data centre.
There were also some 'positives' to be found in Dell's Services. Support & Deployment services revenues grew by 2% to $1.2bn, and so-called Infrastructure, Cloud & Security services grew by 11% to $612m. However, revenues for Applications & Business Process services (I assume the old Perot business) fell by 15% to $295m. That acquisition didn't make sense at the time, doesn't make sense now – in fact it will never make sense. What a waste of $4bn. Anyway, perhaps the new owners will do the decent thing – assuming there will be new owners!
Posted by Anthony Miller at '09:27'
Following an impressive end to last year with profits ahead of expectations (see Tribal Group: technology key to services growth), Tribal Group has had a more muted start to 2013. Although it said trading since 1st January has been ‘in line with expectations’, the order book actually dropped £10m to £158m by the end of April. This is against an increasing international focus on higher growth markets like Asia Pacific and the Middle East.
Last year, the star of the show was Tribal’s Solutions division (revenue was up 23%), which provides an online school self-evaluation management tool, lesson observation resources, and recruitment services for schools, higher education and government. However so far in 2013, Solutions has only performed ‘satisfactorily’ due to a quiet domestic UK market, although it is apparently gaining momentum in Asia Pacific and also the US and Middle East.
The Systems business meanwhile is making ‘good progress’, albeit against a 6% decline last year, and 9% decline in the UK. Tribal said the pipeline in the UK remains resilient, and internationally it has a broader spread of potential new customers for its student management systems, including discussions with two universities in North America, and one in the Middle East.
Tribal's increasing focus on higher growth markets like APAC and ME is sensible, since its domestic UK market remains at best subdued. But Tribal remains heavily reliant on the UK market for most of its revenue. It therefore needs to be careful how it manages the transition to a more balanced geographic revenue mix.
Posted by John O'Brien at '08:37'
Declaring the company's turnaround (or perhaps more aptly, resurrection) "symbolically and practically complete", Vineet Nayyar, chairman of Hyderabad-based Mahindra Satyam (MSat) signalled the start of "a new chapter" once the merger with sibling Tech Mahindra finally comes to pass. Nayyar advised that the merger is at its "penulitmate phase" of what will have turned out to be an oft-delayed four-year journey (see ‘Mahindra IT’ marriage delayed again).
Nonetheless, MSat closed a respectable year (to 31st March) with revenues 8% higher at $1.41bn, a growth rate notably faster than much larger peers Infosys (see Infosys limbos under the bar) and Wipro (see Wipro scrapes by). Operating margins were over 5 points higher yoy, at 18.8%, also a creditable performance.
This will be a watershed year for MSat. Management will need to have tight control on the operational levers to ensure that the integration with Tech Mahindra does not result in yet another 'turnaround' – but in the wrong direction!
Posted by Anthony Miller at '08:21'
Back in Feb 13 I wrote a series of articles along the theme – Doing Good is Good for Business. I received a large and wholly supportive postbag as a result.
Today we have seen two examples of companies accused of not ‘doing good’ – indeed one of ‘doing evil’ – although in neither case does it seem to have done much harm to their thriving businesses. One example was Amazon which was found to have paid £3.2m tax on UK revenues of £4.26b and, to add insult to injury, had received £2.5m in Scottish grants! The other was Google where Matt Brittin was hauled back before the Public Accounts Committee and accused of misleading Parliament in his earlier testimony. The Google case hinges around whether the UK ‘sells’ or just ‘promotes’ their services. I’m not lawyer, but listening to Brittin’s laboured responses, the term ‘If it swims like a duck, if it quacks like a duck, it probably….’ came to mind.
Although I’m sure that almost every HotViews reader is also a Google and Amazon user too, we just must accept that everything we now ‘consume’ via them used to go through a UK-HQed (and therefore UK-taxpaying) entity. Be it classified ads in a local paper or the local record shop. We freely chose to use Amazon and Google but, bluntly, I didn’t freely choose for them to have a significant tax advantage over their UK-based competitors.
Clearly we need to change the tax laws. Whether this can be done by the UK alone or whether it requires global action is unclear. But is it totally unfair to ask companies to ‘do the right thing?” As I have said in previous articles I have been offered all manner of tax saving schemes but have freely chosen to avoid them. I owe a great deal to the UK and, as long as taxes are ‘fair and reasonable’, I don’t have an issue in paying them. UK corporation taxes are now ‘fair and reasonable’ and I can’t see why companies should not pay their fair share.
Anyway, Doing Good is Good for Business too!
Posted by Richard Holway at '14:50'
SAP is pumping out announcements at its Sapphire conference but its unified cloud strategy and SAP Fiori productivity applications are of particular note.
Under the unified cloud strategy, SAP will support all of its cloud products on its in-memory HANA database technology within the next one to two years. It has already moved its core on premise applications, including Business Suite, to HANA and made HANA available on the cloud (see SAP boldly takes HANA to the cloud). Native SaaS assets such as Ariba and Successfactors are already using HANA for analytics. If there were any doubts about the level of commitment to HANA and the cloud this dispels them – the future of the company has been committed to them. Plans for the wholesale availability of complex line of business applications in the cloud is another sign that the cloud and SaaS is poised to shift into new development phase, taking on mainstream business applications, at scale, and appropriate for large enterprises. See further thoughts on this theme in our Make or Break predictions here.
The other announcement that grabbed our attention was SAP Fiori – a set of productivity applications with consumer-style UI’s - think Apple, Google - designed to work across multiple devices (PCs, tablets, smartphones). The initial set of 25 applications will focus on the most common business processes e.g. approvals, sales order and invoices creation. They aim to address one of SAP’s long-standing problems – usability – but will also extend its applications to a wider audience, particularly casual users. More users means more revenue and so it is another strategy for counteracting the expected decline in licence revenue from its traditional applications – and a statement that SAP is doing all it can to remain relevant. This announcement also hooks into another of SAP’s news pieces, its Mobile Secure service, which is designed to secure Android and iOS devices for enterprise use.
These announcements underline the rapid pace of development in disruptive technology areas – now all that is needed is for enterprises to start spending serious money in these spaces.
Posted by Angela Eager at '09:18'
Document management provider Invu is nibbling it way back to strength and although the rate is slow progress is apparent. The most welcome aspect of its full year results (to January 31 3012) was the return to profitability. It wasn’t much - £0.3m on revenue that was flat at £2.7m – but it is the first profit in five years and a long way from the £8.8m loss for the year ending January 2009.
Last year the loss was £0.3m (see here). The forward movement is the result of a long-term turnaround programme but management cannot afford to ease up as its position is still fragile. It points to a tough current and ongoing trading environment in the UK, which is its prime market. One of its most effective strategies seems to have been its OEM agreement with Iris, which embeds Invu in the SMB accountancy sector. Iris has become its most significant partner in terms of revenue. Invu is also ramping up its direct sales in order to attract more medium sized businesses. There was a yoy decline in licence sales (from £1.04m to £0.99m), which Invu needs to address but otherwise it was good to see this British battler making positive progress. However, with document management largely subsumed into broad base suites, Invu is a target for acquisition. Jon Moulton’s Better Capital backed m-hance (see here) is building a reputation for buying this type of company.
Posted by Angela Eager at '08:20'
Although this has arguably little or no direct relevance to the UK market, I think there is a lesson to be learned (should lessons still be needed) about 'Trojan horses'.
Ordina used to fly high as the 'local hero' in the Dutch IT services market. However, its prior CEO refused to see the writing on the wall about the need for offshore capability until 2006, when key client, Rabobank, insisted on an element of offshore delivery before it would outsource some of its application development work to Ordina. With little or no low-cost resource itself, Ordina partnered with Cognizant, then the fastest growing of the India-centric players (see here).
Roll forward to December 2012 and, surprise, surprise, Rabobank is now perfectly comfortable dealing direct with Cognizant, awarding it a 5-year contract for application development, maintenance, and testing services. Ordina managed to cling on to some of Rabobank's 'onshore' business.
As a result, when Ordina announced its Q1 results, revenues were over €5m light from the loss of the offshore contract alone. This was only part of the reason behind the 9% headline revenue fall (to €94m), the other component of which management put down to the two fewer working days in the quarter. Such are the perils of a business model highly geared to time-and-materials services.
The 'balance of power' between the India-based IT services firms and the global and European IT majors is shifting, though this is as much because the India-based majors have achieved critical mass and cannot grow as quickly as they used to, as that the other players have since developed formidable global delivery networks themselves (well, some of them anyway).
Ordina will surely find it very hard to close the stable door now that this Trojan horse has bolted.
Posted by Anthony Miller at '08:16'
On Tuesday I wrote UK moves to growth. Yesterday, we had a raft of further news which rather supported the argument.
Firstly, the outgoing Governor of the Bank of England gave his last Quarterly Economic Forecast. He stressed that ‘recovery was in sight’ as he raised UK GDP growth forecasts from 1% to 1.2% for 2013. He was also able to point to slightly lower inflation.
Conversely the Eurozone put out a bleak report showing a 0.2% decline in Q1 with France in recession and the outlook for Germany markedly lower.
Also the news from the US – which is turning back to its old role of being the powerhouse of the world economy – had wall-to-wall good news on jobs, deficit etc. Even Japan reported some pretty exceptional growth – for them anyway.
Now, I know there are sceptics out there and, let’s face it, a 1.2% growth for 2013 is pretty minor in any historic context. But this is about the first time in the last 5+ years that the revisions are upwards. It is even more exceptional given the Eurozone problems and downturn. Afterall we do more than 50% of our trade with Europe (not just the Eurozone) So this recovery in the UK is being fuelled by an uplift in domestic demand (the lion’s share) and our trade with the US, BRICs and elsewhere outside of Europe.
We are far from being out of the woods yet and there are still ‘events’ that could knock this fragile recovery off its tracks. But at least there was some good news to report for once on a long, long time.
Posted by Richard Holway at '07:51'
Xchanging’s exit from Xchanging Transaction Bank (XTB) one of its founding joint venture enterprise partnerships (EPs) with Deutsche Bank (see Xchanging exits Deutsche Bank JV) is actually a sign of progress at the recovering business process services (BPS) provider.
The initial news sent Xchanging’s shares down 9% in early trading, but they recovered most of the ground later. We have been saying for a while now that Xchanging needs to clarify its position on its EPs. This announcement was certainly a surprise, but may help point the way forwards.
Subscribers to TechMarketView's Foundation Service can read the analysis in UKHotViewsExtra here.
Posted by John O'Brien at '07:30'
CSC has made a welcome return to profitability in the year to end of March, as the turnaround plan instigated by President and CEO Mike Lawrie begins to bear fruit. Diluted EPS from continuing operations for FY13 was ahead of expectations at $3.2 compared to a diluted loss per share in FY12 of over $28. Operating profit came in at $900m for the year giving a margin of 6%, also a huge improvement on last year’s losses. What is more, despite returning $428m to shareholders this year, CSC ended fiscal 2013 with cash and cash equivalents of $2.05bn, an increase of $961m on the prior year.
Whilst profitability made great strides thanks to better contract management and cost reductions, revenue not unsurprisingly moved in the opposite direction in part due to divestments. Total revenue was $14.99bn down from $15.36bn in fiscal 2012. The Managed Services Sector (MSS) reported a 2% decline in turnover to $6.46bn (unchanged in constant currency, ccy) and revenue from the North American Public Sector division decreased by 6% to $5.39bn. Business Solutions and Services managed to increase revenue by 3% (+6% ccy) to $3.27bn in FY13, and moved from loss to profit with a 4.2% operating margin.
It’s still impossible to glean any clues about the performance of the UK, or even EMEA, from CSC’s results. But CSC seems to have put the worst of the National Programme for IT in the NHS debacle behind it - indeed Lawrie talked of 'strong growth' from NHS bookings during the year on the analyst call today. And the SPVA deal with the MoD (see HP fails to ‘defend’ SPVA contract) last April should have helped to lessen the impact of other contract losses (see for example Atos takes on nuclear responsibilities) on its UK performance.
Strategically, Lawrie plans more of the same for FY14 with continued cost reductions, expanded market coverage, ‘pursuing delivery excellence’ and ‘driving innovation’ all high on the agenda. The target for EPS from continuing operations for FY14 has been increased to $3.30-$3.50, but revenue in the year ahead is expected to be 'flat to slightly down'.
Posted by Tola Sargeant at '16:14'
Microsoft has set the date - and the name - for the next iteration of Windows 8. Previously known as Windows Blue (see here), the update will be officially known as Windows 8.1 and previews will be available from June 26. The upgrade will be offered free to existing Windows 8 users. Microsoft maintains 100m Windows 8 licenses have been sold but just how many of those are sitting unused in the channel is a point of much speculation.
There are no formal details but following all the talk of a U-turn (see here) Microsoft watchers will be hoping for changes to the Start screen – and something resembling a return to the now much loved Start button. Whether it will be enough to change opinion about the desirability of Windows 8 on the desktop remains to be seen. The reputation of Windows 8 has suffered and it will take a lot to recover from that.
Posted by Angela Eager at '09:50'
Both the Global Services (BPO) business, and AMEAA market are apparently delivering 'excellent organic growth' for Serco so far in 2013. We assume this means BPO is at least meeting last year's 12% organic growth (see here).
New UK BPO wins so far this year include a new high street retailer, adding to last year’s successes with online retailers Shop Direct (see Serco wins retail BPO megadeal) and Freeman Gratton Holdings. In the UK public sector, Serco secured an extension to its largest central government contract for the DWP’s Child Maintenance Group. This deal was brought on board via its acquisition of Vertex Public Sector last June (see here), so this extension is a good endorsement of the work being done. Serco employs c1,000 people on this contract recovering child maintenance payments.
Along with other new wins at JobCentre Plus, UCAS, DoH and the Food Standards Agency, Serco's total contract value in central government since the start of 2013 is apparently £100m+. This certainly backs up what we are seeing as a very buoyant central government BPS market (see Business Process Services opportunities in UK central government).
Across the broader business there are a couple of concerns. At c£900m the level of new wins is down significantly from £3.9bn this time last year (see Serco on track for 2012). So Serco will really need to accelerate deals signings during the rest of 2013. Second is the ‘very tough’ on going environment in in the US federal market, which is impacting its Americas division.
Despite these uncertainties, Serco expects to meet FY13 targets. It is banking on further strong growth in AMEAA, an improving UK outlook, and cost efficiencies to achieve this.
Posted by John O'Brien at '09:19'
South Africa-based reseller and services player Datatec has had a mixed year. Results for the year to the end of February reveal 4% growth in revenue to $5.25bn and a 2.5% decline in EBITDA to $185.5m - in line with previously reduced forecasts (see Datatec reduces year-end forecasts again). As expected, Datatec’s distribution business, Westcon, dragged the overall performance down after a tough second half, particularly in Europe and North America. In contrast, Logicalis, the infrastructure solutions and services business, delivered ‘a record financial performance’.
Logicalis’ revenue increased by 9% to $1.35bn and operating profit was up by 28% to almost $55m. The division now accounts for 26% (2012: 25%) of Datatec’s revenue, but 40% of its EBITDA (2012: 33%). The numbers suggest Logicalis’ focus on growing the services side of the business is working: product sales increased by 8% over the year, whilst total services revenue was up 14%.
The UK and USA are apparently the strongest performers at Logicalis – welcome news for new Logicalis UK CEO, Mark Starkey. The results don’t divulge figures for the UK business, which turned over £186m in FY12, but it’s singled out for praise and we’ve previously estimated Logicalis’ UK services growth in FY13 at 10%+ (see Logicalis UK: growth and evolution). We’ll be catching up with Mark again soon for more detail on the UK performance.
Datatec is predicting ‘another robust performance’ for Logicalis in FY14 with the business on track to record its fifth successive year of strong revenue and profit growth. At the very least, revenue from 2e2’s European operations, which Logicalis acquired in March, will boost the top line (see ‘2e2 Europe’ finds new home at Datatec’s Logicalis). The four operations, acquired for just $31m, are expected to add annual revenues of approximately $150m.
Posted by Tola Sargeant at '09:10'
Salesforce.com and Oracle have both announced plans to open UK data centres, decisions that are designed to increase their appeal to UK government and boost their G-Cloud profiles.
At the start of the month Salesforce.com announced plans to establish a UK centre in conjunction with NTT Europe. It is scheduled for completion in 2014. It will serve the European market – at 38% yoy growth it was Salesforce.com’s fastest growing region in FY13 – but the move will also be designed to help the company capture business from UK government where it has made little headway. Although Salesforce.com has joined the G-Cloud, as of the last Cloudstore update, we are not aware of it closing any deals.
Today Oracle followed suit but with a more overt government focus. Its UK data centre will be dedicated to offering services for the G-Cloud framework. It will be co-located in Equinix’s Thames Valley facility and be IL3 compliant for information security and availability. As far as we are aware Oracle had not closed any Cloudstore deals by the time of the last sales update.
These moves suggest that data residency is an issue for the public sector but they are also a strategy to help the two companies stand out from the crowd. And the timing is good as the Cabinet Office has just launched its ‘Cloud First’ policy (see here).
Posted by Angela Eager at '09:03'
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Gresham Computing, the long established finance sector software and services provider talks of a “solid” start to its financial year, for the January to May 2013 period, on the back of its new Client Transaction Control product. Pilots are morphing into paid-for projects in Asia and EMEA which is positive, but that is still some way from full engagements. If they make the final move they will start to deliver significant revenue and Gresham is hopeful that CTC will drive revenues through 2013. Overall performance is currently in line with expectations. What was not so positive was the news that the company took a loss on the March 2013 sale of the Banking and Lending business it operates in the Caribbean. The £0.5m sale generated a £0.3m loss, resulting in £0.3m net cash. Still, the disposal means the company can concentrate on selling CTC into the North American market, which can’t be a bad thing.
Posted by Angela Eager at '08:22'
Xchanging is selling one of its flagship enterprise partnership (EP) joint ventures Xchanging Transaction Bank GmbH (XTB) back to partner Deutsche Bank for €40.5m in cash. Deutsche Bank apparently decided that the securities processing services provided by XTB are now core to the business, and so it wouldn’t have renewed in May 2016. XTB had revenues of £97.4m in FY12, so Xchanging’s 51% stake would have delivered just shy of £50m last year. Xchanging's shares took a 9% cut on the news.
Xchanging also provided an in line update for the first four months of 2013, having ‘sustained the momentum’ it achieved in the second half of last year (see Xchanging’s FY12 shows signs of recovery). Of course HotViews readers will know it hasn’t all been plain sailing since the start of 2013, with the news last month that Xchanging will lose its largest infrastructure contract at the London Metal Exchange (see here).
Progress is apparently being made in insurance, following a contract extension in Australia with Toyota. Its recently launched Netsett central accounting and settlement service has also had ‘some initial interest’ and is now in pilot phase. In the technology division, Xchanging’s Xuber insurance business process platform has apparently secured a number of contracts since the start of the year, including with Q-Re and Aviva.
However the US procurement business, which it picked up from BAE Systems in 2011 (see Xchanging wins new BAE deal in the US) is underperforming due to slower than expected implementation. Consequently, revenues from the deal are now likely to be lower than the $150m over seven-years it originally expected.
It's clearly still a bumpy road to recovery. We will provide more colour and movement later following this morning's call with management in UKHotViewsExtra.
Posted by John O'Brien at '08:18'
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