Some interesting news items caught my eye today on three of the themes in my oft-repeated Predictions.
I really do believe that wearable computing will be big. But, as I have said many times, it will only take off if one device (eg a ‘watch’) can do many things. At the moment it seems that every wristband has a separate function. So you would soon run out of arm (or leg) room for them all. I envisage a ‘watch’ which has many sensors. These can then be used by third party app developers to produce many different applications.
Although still a long way off my ideal, today Azoi Inc launched Wello. “Wello is a thin lightweight smartphone case embedded with sensors that measures blood pressure, electrocardiography (ECG), heart rate, blood oxygen, temperature, and lung functions to a high level of accuracy”.
Put that in a watch, add GPS, and accelerometer and other sensors. Add things like a blood test that doesn’t require drawing blood (apparently already possible) and you start to get a wearable device with huge potential. Obviously the healthy and worried well (my doctor tells me that is what I am!) but most importantly the old who want to stay in their home. I really do believe we are getting closer to the doctor calling YOU to tell you "you are about to have a heart attack and an ambulance will be with you in 4 minutes”. I wonder if Apple’s iWatch will be like that?
Last Sunday I was the nominated driver for friends to a Birthday Party so no drinks for Holway. How much easier if I had driven there and then got my car to drive me back. Fanciful? I don’t think so. Continental have estimated that autonomous vehicles could save $5tn in deaths and injuries. They reckon it will be a reality by 2025. Indeed, they have opened a debate about liabilities. If you get hit by a driverless car, who do you sue? I somehow suspect that driverless cars are more likely to be hit by cars with real drivers!
My neighbour was given a fantastic drone with HD camera for Christmas (Well, Boys must have their Toys!) Drones are now so cheap that they are being used in an increasing number of applications. Indeed I’m sure you have all seen the drone pictures of the floods on the Somerset plains or the amazing pictures of the dolphins in the papers this week.
Anyway, all areas where science fiction is fast becoming reality.
Posted by Richard Holway at '18:36'
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It is an uncomfortable fact of life that IP is increasingly being ignored by most consumers. Copying music and films is pretty commonplace. People just don’t see it as a crime.
As blogs and on line newsletters proliferate, they all use photos and images which technically infringe someone’s IP. Google Images has millions of such illustrations and most people use them without a second thought to ownership.
So it was quite interesting to read today that Getty Images is making 30m of their stock photos available for free. All they ask is to be credited and for users to link back to Getty’s own servers. Clearly this will allow them to do all kinds of commercial things – maybe even serve up advertising.
I can understand the move but, bluntly, I don’t think it stands any chance of working. It is too easy to insert an image in a blog without such accreditation. And what are Getty going to do to police it?
Posted by Richard Holway at '18:29'
Data analytics is fast becoming another hot space for IT/BP players. Accenture has announced it is six months into an 18-month ‘smart water’ pilot with Thames Water, which could well be the first of its kind in the UK.
Accenture is implementing data analytics from Tibco Software and Space-Time Insight (STI) to ‘create a single view of Thames Water’s systems and assets’, such as pipe and treatment facilities. Thames Water began introducing smart water meters last November that collect water usage data every 15 minutes.
While the deal is unlikely to be huge in revenue terms, it is significant for a number of reasons. Firstly, Thames Water already partners with Wipro for applications and infrastructure and Steria for billing and customer services. But Accenture has been trusted to pilot this valuable data analytics project.
In our recent ESASViews report Visual Data Discovery: cracking the pervasive insight nut, we showed there are significant opportunities for organisations to use visual data discovery (VDD) and analytics technology more widely, to create more informed decisions and faster insight to action. The utilities sector is a good target, since reducing outages and leaks has huge cost benefits.
Accenture’s partners are: Tibco, a well- known name with its Spotfire VDD technology (apparently used by 9 of the top 10 oil and gas majors). STI is a relative newcomer with a next generation ‘situational intelligence tool’ that is able to bring ‘smart meter, enterprise, grid and environmental data into unified visual and analytic context’. The technology is used by a number of American utilities but this looks like its first big win in the UK. It follows a $20m series C investment from UK private equity firm Zouk Capital last September.
This pilot is a good example of how analytics services contracts could evolve, starting out as technology pilots, and in time maybe evolving into a broader managed service/outsourcing arrangements. It is easy to see why IT/BP players like Accenture are keen to win such business.
Posted by John O'Brien at '09:42'
Although European TMT M&A deal flow was almost unchanged again in February (after allowing for the shorter month), average deal sizes increased, according to latest data from corporate finance firm, Regent Partners.
During the month there were 244 deals worth a total of $20.7bn, acorss which the average Price/Sales multiple increased to 1.5x while the Price/EBITDA multiple fell to 8.5x. Listed companies (as represented by the Techmark Index) resumed their upward trend after a slight reversal in January.
February saw a number of interesting acquisitions involving UK software and IT services companies, including yet another deal by the voraciously hungry Advanced Computer Software (see here), the entry into the German market by London-HQ’d, privately-held 'nearshore' IT services firm, Endava (see here), a services acquisition by family-owned mega-reseller SCC (see here), and the acquisition of London-based web advertising fraud detection start-up Spider.io by Google (see here).
Eligible TechMarketView subscription service clients can read our concise analysis of UK software and IT services M&A activity by downloading the latest edition of IndustryViews Corporate Activity.
Posted by HotViews Editor at '09:20'
We received a very thoughtful comment from a UKHotViews reader about my musings on the online ‘meals on wheels’ industry wondering why I had such a ‘downer’ on the subject. He asked whether it was the mega-valuations or the underlying business model that troubled me (you can read the full comment in Anchors afloat?).
It was indeed the valuation issue. There’s nothing wrong with the 'meals on wheels' business model assuming it makes a profit. Indeed the more players the better the choice as far as I am concerned.
Clearly, meals-on-wheels aggregators like GrubHub (see Anchors aweigh!) should have a margin advantage over the likes of Dominos, Pizza Hut et al who actually produce the food as well as deliver it. The issue is what is the ‘right’ margin?
I thought Nasdaq-listed internet restaurant booking site OpenTable (trades as Top Table in the UK) might be a good proxy. Opentable, achieved revenues of $190m in 2013 and made $46m OP, i.e. 24% operating margin (2012 and 2011: 23%). This is more like a software company margin.
OpenTable enjoys a $2bn market cap, around 60x net earnings. Just to give some context, SAP, which runs a 27% operating margin, has a market cap of $95bn and trades at 22x net earnings. Oracle – with a 39% operating margin – is valued at $177bn, about 17x earnings.
I will leave it to you decide whether you think there is a ‘valuation issue’ with online meals-on-wheels outfits. As you ponder this weighty matter you may wish to re-apprise yourself of my thoughts on the difference between 'great companies' and 'great stocks' (see here).
Posted by Anthony Miller at '08:58'
One small company we’ve followed with interest over the past nine months has been MoPowered, which provides online retailers with mobile-optimised m-commerce capabilities. In January they published a positive trading update for the year, see here, and today they have announced further progress in expanding their customer list and target sectors with 20 new clients and a move into other retail sectors including food and drinks, gifts and home improvements.
MoPowered’s experience is mirroring that of many companies in the payments and commerce world. Now that they have developed and tested the technology they have to move quickly to establish scale and market position. MoPowered has recruited sales and product leadership resources to drive growth in the UK with the expectation of a European launch later this year. The second component of success is the ability to on board customers very quickly using standard systems and at a low marginal cost.
This AIM-listed company is likely to generate substantial growth over the coming year, building on the c.33% growth in 2013, and has worked hard on getting the economics of customer recruitment right. Today’s statement supports our confidence in the company’s progress in terms of revenue growth and improving profitability.
Posted by Peter Roe at '08:30'
There’s just a week left for you to submit your registration for the fourth in our series of Little British Battler events, to be held in London on Wednesday 23rd April 2014.
This time we are particularly seeking to meet companies that are playing to our main theme for 2014 – Race for Change. The theme alludes to a challenge that companies face today more so than ever before – to embrace technological change before nimbler competitors eat their lunch!
We want to hear from CEOs of small, privately-held, UK-owned software and IT services companies that can demonstrate that they are ‘in the race’ – either because of the way they are using technology to change their own businesses to disrupt incumbent players in their market; or because their technologies are transforming the way their customers do business to disrupt their established competitors.
As usual we will select twelve CEOs to meet the TechMarketView research team in central London in closed session to present their company and its market propositions. In return we will give unbiased, constructive feedback based on our extensive knowledge and experience of the UK software and IT services market. Each session lasts 50 minutes and there is no fee or commitment involved.
The twelve companies will also be featured in UKHotViews, the most highly regarded and widely read source of opinion and commentary on the UK IT scene, and in a special research report distributed to selected ‘movers and shakers’ in industry and government.
Many of the CEOs who participated in previous Little British Battler events have seen real benefit to their company in terms of increased market visibility and access to new business opportunities (see here for just a sample). This is an unparalleled chance to get your company on the radar of the UK’s premier software and IT services research firm.
Candidate companies must be headquartered in the UK (i.e. not subsidiaries of foreign firms), privately held (though may have accepted external funding), with annual revenues under £25m. Companies must derive the substantial majority of their revenues from software and/or IT services and/or IT-enabled business process services.
If you want to apply, please click here and fill in the registration form (you may apply again if you were previously unsuccessful).
The closing date for registrations is Friday 14th March. We aim to notify successful applicants by Friday 28th March.
Should you have any questions, please email us at firstname.lastname@example.org.
The TechMarketView Little British Battler programme is run in association with corporate finance firm MXC Capital.
Posted by HotViews Editor at '07:21'
It sounds like a sequel to our HotViewsExtra ‘Egress Software secures rapid growth’. And in a way it is. It’s another step in the rapid growth story for Egress Software Technologies, the provider of file and email encryption software. The company has secured an investment of £2.2m from Albion Ventures LLP – equivalent to Egress’ annual revenues in its last completed financial year. Albion was seeking an investment to fit with its preferred investment profile: a rapidly growing company in a “fast growing dynamic market”. In this case, the market is ‘cyber security’.
CEO of Egress, Tony Pepper, has stated that the next two years will be crucial for the growth and long-term success of the company. When we spoke to Pepper a couple of months ago, he stated that over the next year the business was expected to grow from a 32-person business to a 60-person business, as Egress benefits from gaining UK Government CESG CPA email encryption certification up to IL3 for its Egress Switch product. That level of growth will be tough to manage so Albion’s experience with fast-growing businesses will certainly be welcomed.
What will Egress 'secure' next?!
Posted by Georgina O'Toole at '10:55'
It has transpired that Liverpool City Council has decided to end its Joint Venture with BT – Liverpool Direct Limited (LDL). The JV, which was originally set up in 2001, had been extended to 2017 in previous negotiations. However, we understand the decision has been made to ‘buy out’ BT’s 60% stake in the JV and bring council services back in-house.
Over the life of the arrangement, LDL has provided services ranging from IT to payroll, HR, revenue services and contact centre services. The JV employed 1,300 people, served 350 public and private sector organisations (including schools) and was turning over c£80m per year. In August 2013, we wrote in HotViews (see TCS to replace BT at SIA) that LDL had been the incumbent at the Security Industry Authority (SIA); but the contract was gained by TCS at retender. We assume the Council will continue to serve LDL's existing customers.
According to the council, BT had promised £5m of savings over the next three years as part of the extension agreement. However, the council has since returned to BT to ask for further savings in order to help towards achieve the £156m of savings the Council needed to achieve. BT has said it was unable to commit to any additional savings.
The LDL JV has been controversial with media commentators questioning the value for money the council was getting from the deal. However, the council has also praised the JV along with BT’s broader support of the City, for example, through job creation and the support of growth of high-speed broadband services. Indeed, it appears that the council only feels in a position to go it alone due to the learnings it has taken from the partnership.
Nonetheless, this will be a blow for BT. And it won’t be the swansong that Neil Rogers, BT’s President of Global Government at BT Global Services was hoping for as he retires (see Neil Rogers retires from BT Global Services). Rogers is also Chairman of LDL. The news comes just one month after it was announced that services from another BT local government partnership – One Connect Limited with Lancashire County Council – would be taken back in-house. At Lancashire BT will focus on ICT, revenue, benefits and payroll, while services ranging from welfare services to HR will be returned to the Council.
Posted by Georgina O'Toole at '09:53'
The combination of a depreciating rupee and the loss of two large clients, means offshore BPS pure play EXL Service is now expecting FY14 to be more or less flat. This is a stark turnaround in fortunes from last year, when it delivered 23% top line revenue growth, making it one of the fastest growing BPS players (see here).
EXL said FY14 revenues would be in the region of $480m and $500m, which would be flat to up 4% at best on FY13. The uncertainty is losing two big clients relating to its acquisition of OPI in 2011 (see EXL pays $91m for F&A specialist OPI), which will have a negative impact of between $12m and $20m in FY14, with a further impact in 2015.
EXL actually reduced its FY13 guidance in mid-year as a result of the client losses and depreciation in the rupee (see EXL downgrades FY13). FY13 hit this guidance with revenue up 8% to $478.5m. Operating margins meanwhile were also up to 14.1% vs. 12.9% last time, suggesting that EXL is now bolstering its bottom line as it adjusts for slower growth.
Q4 already shows a slowdown - revenue was up just 5.4% to $124.1m. This was actually better than expected thanks in large part to its decision analytics business, which was up 24% yoy and 19% qoq. Operating margins meanwhile were particularly strong, rising to 18.5% compared to 13.2% last time.
Business process analytics is one of EXL’s emerging opportunities - sensible for a mid-sized BPS player with specialisms across a select few verticals - and should also be higher margin business. Growth here is apparently being driven by risk and marketing engagements in the banking, insurance and health care sectors. EXL has grown its analytics operation from 700 to over 1,000 people in 2013, with new dedicated sales resources in the US and UK.
Business process analytics is a hot area within the UK BPS market, which we will be exploring in a forthcoming report for TechMarketView's BusinessProcessViews research service.
Posted by John O'Brien at '09:41'
Two announcements show the direction big data development is taking, as attention turns to accessibility and applications, specifically enabling business users to find and use the nuggets of data within their data sets.
A partnership between operational intelligence expert Splunk and data visualisation specialist Tableau will make Splunk’s machine-to-machine generated data directly available to Tableau business users. There is nothing magic happening technically (Splunk’s recently released ODBC driver is being used to present its data as a native data source within Tableau) but it does put a new class of data into the hands of business (not just IT) users. When combined with more conventional data, this could be the springboard for a diverse range of data driven business applications, which are essentially the front end for data sets and big data platforms (see Visual data discovery: cracking the ‘pervasive insight’ nut).
SAP’s latest announcement, around the HANA Cloud Platform, also majors on accessibility and it specifically calls out the potential for developing real-time data driven applications: “startups, ISVs and customers can now build new data-driven applications in the cloud”. HANA Cloud Platform is now positioned as a ‘full platform’, supporting application development. SAP says over 1200 start-ups are developing on the platform with 60 of their offerings live. Revenue from the start-ups’ applications is low but has crossed the $10m mark. A consumption-based pricing model makes it easier to consume the HANA platform – select from three base level/base price offerings, SAP HANA AppServices, SAP HANA DBServices, and SAP HANA Infrastructure Services - and add on options as required e.g. predictive analytics capabilities. And the SAP HANA Marketplace provides a vehicle for testing and deploying applications.
ESAS providers can build many of these data driven applications but what is potentially disruptive is that the emerging technologies are making it easier for enterprises to build their own.
Posted by Angela Eager at '09:39'
Pleased to announce the full year results for RCM Technology Trust (RTT) released to the market today. I’ve been a director at RTT since 2007.
Results for FY13 to 30th Nov 13 were nothing short of excellent with NAV up 46.9% but the share price (because we’ve almost eliminated the discount to 0.2%) is up 61%. This performance is significantly ahead of the benchmark index used (indeed is ahead over any 1,3 or 5 year period too) and of our competitors. We got a major fillip by being named by Investors Chronicle as one of their ‘Top 100 Funds’. No mean achievement as there are nearly 3000 operating in the UK!
I’m also very pleased to say that the great performance has continued since the year end with RTT’s share price up another 9.5% since 30th Nov 13.
The single largest contributor to performance was our investment in Tesla which I have commented upon before. But other major contributors were SunPower (manufacturer of solar cells), Micron (NAND and DRAM memory storage) Western Digital (Hard disc drives) and Google. It’s really interesting how some of the ‘unsexy’ sectors like flash storage and hard disc drives have really prospered. And hat-tip to the managers for their foresight here.
I’ve long believed that directors should have ‘skin in the game’. Indeed if I was a policy maker I’d both insist on it and incentivise to get remuneration paid in shares (extremely difficult for directors for some ridiculous reasons) But, as you can see from the R&A issued today, I invested heavily when I joined the RTT board in 2007 and have been richly rewarded with a 160% rise since. In this regard, also good to see the fund managers this year taking a goodly part of their performance fee in RTT shares too.
Finally, David Quysner is stepping down as Chairman at the AGM in April to be replaced by Robert Jeens. David has been chair since 2004 and many will also know him as the Chair of Abingworth. He’s been a great Chairman with, of course, the foresight to recruit me onto the board! Shareholders should be very grateful for his stewardship.
Posted by Richard Holway at '08:16'
AIM-listed Arcontech is a real time software specialist providing products and bespoke systems for collection, processing, distribution and presentation of time sensitive financial markets data. After reporting full-year figures up 25% for the full year, see here, the half-year figures reported today, to the end of December, showed growth of only 15%, to £977k, with the company bemoaning the slower sales cycle.
Nevertheless, this represents good progress in a dynamic market and the management have been able to build the product pipeline and improve the cost performance with the loss for the period 74% lower than the first half of the previous year, at £69k. Recurring annual licence fees represent 99% of Group turnover
Arcontech’s portfolio can help investment banks and other trading organisations manage their data costs and also enable them to supply value-added data to their customers. This is of increasing importance as the need for cost reduction grows at the same time as investment products become more complex.
With an annual run rate of revenue standing at £1.9m, net cash of over £800k and operating costs apparently under control (revenues now cover 94% of the cost base as opposed to 84% for the full year), the management can be positive about the outlook for the full year and a continued move towards profitability.
Posted by Peter Roe at '08:03'
We’ve now been through the detail of Capita’s FY13 results. Looking at the headlines you’d be forgiven for thinking all is going swimmingly, with 15% topline growth, 8% organic growth, and double-digit margins (see Capita hits 8% organic growth).
However, looking under the covers points to inconsistency across Capita's various divisions. Some areas like justice and secure services and customer management are growing at a rapid rate thanks to recent big wins and acquisition activity. Meanwhile, other others divisions, like IT services, insurance & benefits and health & wellbeing are either displaying sluggish growth, or even declines. At the same time, group margins continue to be put under pressure.
This highlights real 'diversity of performance' within Capita's business - a growing theme across the broader UK SITS supplier landscape.
Subscribers to TechMarketView's Foundation Service and BusinessProcessViews research stream can read the full analysis of the performance and prospects for the UK's leading BPS supplier here.
Posted by John O'Brien at '07:30'
The cyber crime empire is rising. Far evolved from the days of a curious few testing firewalls from their bedrooms, hacking has grown to become an industry of its own, organised and dedicated to the nefarious tasks of everything from data mining to grand scale hacktivism.
As those responsible begin to accrue greater finances and power, their expanded resources allow them to develop ever more sophisticated threats, testing enterprise defences ever further. With the cyber crime arsenal becoming more powerful and complex by the day, organisations of all kinds face an ever-more difficult task when it comes to defending against the tide of threats that menace them on a daily basis.
For many, that is fast becoming a losing battle. According to a 2013 PwC/UK Government report, 93% of large enterprises and 87% of smaller businesses experienced some form of security breach in 2012. A shocking figure, this was up 50% on the year before; 2014 looks to be a difficult year for many businesses.
Defending against threats that can scale from anything from a single computer to multiple networked machines that test every element of an organisation’s set-up requires a new approach to security. With so much at stake, organisations have never had to work harder to protect and defend their most valuable assets. Secure thinking is no longer just a nice-to-have, but an absolute necessity.
Understand the impact of cyber crime on your business. Find out the threats in your industry. Access collective knowledge on the ongoing need for cyber security and get up-to-date information on cyber crime from Fujitsu and its expert partners:
Posted by Fujitsu at '00:00'
It probably hasn’t escaped your notice that we are in National Apprenticeship Week. Readers will know of my passionate support for the scheme from the many posts I have made on the subject in recent years. I really feel we have ‘arrived’. Since 2010 1.5m apprenticeships have been created and half of all businesses – big and small – intend to take on apprentices in the next five years. Everyone now says apprenticeships are ‘good’ and, as I have said many times too ‘doing good, is good for business’.
In our own sector, this week we’ve heard of Accenture creating 40 computer tech apprentices in Newcastle and BT creating some 700 new posts including a new digital media training scheme. There are too many other examples to mention. This movement sure has legs!
Yesterday, as part of this, I was invited to a roundtable organised by the BVCA with Doug Richard – best known for Dragon’s Den. I’m not easily impressed, but Richard was one of the best and most passionate speakers I have had the pleasure of listening to in a long, long while. Richard completed an apprenticeship policy reform study for HMGovt. He told us – and I hope I’m not divulging any secrets – that he’d just been told that his recommendations had been accepted and an announcement would be made soon. One of the recommendations is a tax credit to firms taking on apprentices – even higher if you are an SME. The proposals seem to have all-party support.
We need to up the image of being an apprentice. For some reason it evokes images of the shop floor. But remember all doctors and all lawyers go through an apprenticeship – it’s just that we don’t call them apprentices. I – like Doug Richard – am very proud to state that I too was an apprentice. I didn’t go to university. Choosing instead to become a trainee computer programmer at the age of 18. I have no regrets. Richard pointed out that today it is harder to get an apprenticeship at Rolls Royce than to get into Oxford or Cambridge.
The UK is in desperate need of a highly skilled and young workforce. Apprenticeships are the way of achieving that. It might take a few more years but, for once, things really are moving in the right direction.
Footnote - You can download the Richard Review of Apprenticeships here.
Posted by Richard Holway at '20:57'
I don’t know what it is about the ‘meals on wheels’ market that is getting investors so excited, but it’s certainly hot, hot, hot (unlike the food I suspect).
This time it’s happening here in the UK, with Denmark-founded but now UK based internet takeaway ordering service Just Eat acquiring Birmingham-based rival Meal2Go for an undisclosed sum. Apparently Meal2Go’s EPOS technology was the main attraction.
The rumour mill has Just Eat angling for a near-£1bn IPO this year – and why wouldn’t they, given the froth around the forthcoming IPO of US-based GrubHub (see Anchors afloat?).
Posted by Anthony Miller at '10:01'
Queen’s University Belfast spin-out Analytics Engines, developer of software ‘accelerators’ for ‘big data’ applications, has scored £1m in funding led by compatriot VC firm Crescent Capital. The investment will be used to accelerate product and market development. Good to see that UK innovation is not just found in England.
Posted by Anthony Miller at '09:47'
AIM-listed, but Cologne head-quartered SQS, the supplier of independent software testing and quality management services, reported full year figures and good progress with turnover up by 7.5% to €225.8m, gross margin at 32% (a small increase) and pre-tax profits up 34.5% to €12.4m. The Group has continued the progress which began in the first half year, reported in our September HotView.
A key move was the November acquisition of Thinksoft, an Indian testing company focused on the Financial Services sector, see here, which will accelerate SQS’s ambitions in this important vertical. Thinksoft had €23.4m revenues in 2013 and its activities will be consolidated into the Group from January 2014. Thinksoft is strong in the dynamic payments market with expertise in areas such as Faster Payments. It also brings more offshore capability in India to the Group.
Central to the Group’s strategy is the move to Managed Services and longer term contracts bringing potentially higher margins, and to shift the balance away from short term engagements and a very long client list. See our December comment on the recent success in winning new deals, here. SQS is also expanding its resources to support the growing markets of mobile and e-commerce.
The outlook for SQS looks good, as companies in many sectors bring propositions to market more quickly and at the same time need to improve quality and reduce risks. Using specialist testing resource can be particularly helpful here. The US operation is showing the fastest growth, from a small base, and this operation, and the UK, should be boosted by the Thinksoft capability. Overall the Group still has much to do to reach its 2017 revenue target of €500m, requiring deeper relationships with larger customers, but 2013 saw some good steps in the right direction.
Posted by Peter Roe at '09:00'
Management didn’t seem to want to make a song and dance about it but I thought it was worthy of mention that PageGroup – the shortform soft rebrand of UK-headquartered recruitment group Michael Page International – hit one billion pounds in revenues in 2013 for the first time. Nonetheless, gross profit declined by 2.5% to £514m.
As presaged last month (see here) PageGroup’s UK business saw gross profit rise by 2% to £124m in 2013 on revenue growth of 1% to £298m. As a result, gross margins expanded by 60bps to 41.0% and, with a more streamlined operating model, UK operating margins jumped from 4.7% to 6.2%.
Management reiterated how ‘challenging’ a year 2013 was, and seemed as cautious about 2014 as peers, with all depending on the economy. Of course.
Posted by Anthony Miller at '08:55'
Today we launch a new report for subscribers to our very popular InfrastructureViews research stream. “How the leading Infrastructure Services players are fighting for their place in the cloud market” is authored by Kate Hanaghan, Research Director for the stream.
Many areas of the traditional IT services market are either declining or growing very slowly. Meanwhile, cloud services are growing double digits. The as-a-service model is creating opportunities for enterprise and government buyers to re-think how they buy infrastructure services and from whom. However, even in two years’ time, we estimate that the total cloud market will still only account for 14% of the total Software and IT Services (SITS) market. For suppliers, that means a large slice of their revenue stream will still be tied up in slow-growing (or declining) infrastructure services contracts. At the same time, they must create new offerings, redefine their positioning and adapt to a different type of commercial model.
This report looks at how the Infrastructure-as-a-Service (IaaS) market is shaping up, and the role of private cloud and orchestration. It also examines the margin challenges for suppliers and assesses the cloud offerings and relative positions of the Top 10 infrastructure services suppliers in the UK.
If you also subscribe to our newest research stream, FinancialServicesViews, you will also be interested in Cloud Services in the UK Financial Services Sector. To subscribe to any of our research streams, please contact Deb Seth.
Posted by HotViews Editor at '08:33'
When I first met the top team at UK-based, AIM-listed, ‘buy-and-build’ IT recruitment firm InterQuest almost exactly five years ago (see here), they were bullish on the prospect of more than doubling EBIT to £10m and thence increasing the stock valuation to way north of its then £9m.
Much water has flowed under many bridges since then (start here and work back) with perhaps surprising results. InterQuest closed 2013 with just £1.5m in EBIT yet the stock is currently valued at around £35m. Well, there you go!
Much has changed in the intervening years, most recently the ‘de-branding’ of its multiple recruitment businesses (they used to operate as a sort of ‘SThree-lite’) to come under the mother-brand, and more changes are likely to come, including (I postulate) the probable closure of its fledgling Singapore office which “has consistently failed to meet expectations” since it was established.
InterQuest starts the year having returned to net profit (£1m) with slight revenue growth (1% organic), and with an improving UK economy (over 90% of its business is done in the UK). Let’s see what the rest of the year brings.
Posted by Anthony Miller at '08:18'
There’s just ten days left for you to submit your registration for the fourth in our series of Little British Battler events, to be held in London on Wednesday 23rd April 2014.
Posted by HotViews Editor at '07:19'
The advent of cloud and SaaS models has made technology buyers rethink not just product purchases but the supporting services that go alongside. That’s also made vendors consider how to best serve their clients in this on-demand world.
One of the things that buyers love most about SaaS is that it frees us from the world of long-term maintenance contracts, letting us choose and buy in a way that feels more instant. But for most enterprise roll-outs we still need to buy services. And yet Services as a Service - not really seen that.
Now blur, with its upcoming 4.0 release, is changing those buying habits too. blur delivers a simpler, faster and more efficient buying - and selling - experience for services, whether it’s the ad-hoc project to ‘get something done’ or the longer term implementations that are traditionally characterized by long procurement processes and even longer overruns.
blur 4.0 showcases why services commerce is simply about buying and selling services online. The new version of the platform provides a unified experience regardless of browser or device. The ability to start a project while on the go - from the offsite meeting with CTO to the commute home, and then run the project from anywhere, makes s-commerce universal.
The new framework on which 4.0 is based also makes it easier to integrate and develop additional functionality for buyers and sellers - from instant insight into live projects, enhanced pitch previews and improved project management and collaboration. Now you really can move away from traditional, lengthy and fat procurement models into the transactional buying of services, using a platform that’s designed for the enterprise.
You can gain insight into how blur 4.0 can change your services buying by visiting the public page preview from the main site at www.blurgroup.com or by going directly to preview.blurgroup.com. There are feedback mechanisms ahead of the full release in April so tell us what you think.
Posted by blur group at '00:00'
UK ERP provider Access Technology Group tucked another company into its portfolio this week, with the acquisition of the applications division of existing Access reseller Atlas Business Systems. This is the fifth reseller acquisition (see the history here) and part of a strategy to move towards a direct sales model. It’s a case of little and often – with Atlas, the Access team will have a direct relationship with another 170 customers using the Dimensions accountancy software customers. The direct relationship should be valuable when cross-selling applications, particularly those running on the Access aCloud that the company is populating via in-house development and acquisition. We are due to catch up with Access CEO Chris Bayne later this month to get more insight into the prospects for the company.
Posted by Angela Eager at '16:17'
We are pleased to see that Mike Ettling, formerly chief executive of dedicated HR and payroll house NGA Human Resources, has joined SAP where he will head up the Cloud for HR line of business. This includes SAP’s ERP HCM solution and the acquired cloud-based SuccessFactors portfolio.
Ettling pulled a lot out of the hat during his time at NGA Human Resources (then known as NorthgateArinso, see NorthgateArinso – shaping the HR market?), particularly developing the BPaaS proposition around a SAP-based platform so he knows the SAP, HR and cloud spaces well. He also has experience straddling the on and off premise worlds which is something SAP is struggling to master. Cloud-based HR is a high growth area and particularly important because it is one of the first back office areas to adopt SaaS solutions at scale. It is also an example of the emerging ‘systems of engagement’ style of applications. We look forward to catching up with Ettling once he has settled into his new role.
Posted by Angela Eager at '09:38'
Recent problems in Serco’s UK Government business have, as expected, taken their toll on Serco’s FY13 profits.
Operating profit was down 47.1% to £143.8m in the year to 31 December, dragging the margin down by almost half to 2.8% from 5.7% last time. Operating profits were badly hit by the exceptional charge of £90.5m, to cover the Electronic Monitoring (EM) settlement with the Ministry of Justice and one-off costs (see here), as well as an estimated £21m of other costs for the UK Government reviews. Free cash flow more than halved to £84.8m due to increased costs for BPO working capital and other adverse effects including some delays to payments.
The headline revenue figure remains healthy thanks to revenue from contracts begun in 2012. Adjusted revenue from ongoing activities (i.e. excluding disposals) was up 7.8% in constant currency to £5.1bn, and organic growth was 5.9%. The all-important UK & Europe division didn’t perform badly, with organic revenue growth of 3% (actually ahead of last year’s 2%). The problem, however, this was driven by first half growth from contracts like Shop Direct and AEGON UK won in 2012. Things pretty much dried up in H2.
Global Services – Serco’s BPO division – has also begun to slow down. After achieving 12% organic growth last year (see here), organic growth in FY13 came in at a more modest 5% to £772.2m, because of a weaker second half. Operating margins are very slim for a BPO business - they fell to 2.5% from 3.5% last time. This leaves Serco some way off UK market leader Capita, which grew organically 8% this year and delivered a 13% margin (see here).
Serco is doing many of the right things to get its house in order, and return a much stronger organisation (see Serco rebuilding trust with UK Government – lessons for all Government suppliers). The new CEO and NED appointments will also help (see here).
Nonetheless, Serco can expect a painful 2014 as the true financial impact of last year runs its course. A mid-single digit organic revenue decline and a 50-100 basis points fall in adjusted operating margin is expected.
Posted by John O'Brien at '09:06'
In the latest research from ESASViews we delve into the world of front office digitisation to assess market appetite. What is clear is that organisations are making budget available to build their digital capabilities, although investment is still project-based for the most part. However, established suppliers risk ceding opportunities to specialists like digital agencies and emerging providers if they fail to modernise their technology and go-to-market models.
In ‘Capturing the digital front office opportunity’, there are two critical messages for established ESAS suppliers. Rebranding traditional technology is not enough to secure digital contracts - new forms of engagement and experience-centric applications are needed. Secondly, seizing the digital transformation opportunity requires stubborn internal silos and traditional execution processes to be broken down. The report provides insight into how some of today’s leading players like Accenture, IBM and Capgemini are adapting to the digital challenge and the developments and directions all suppliers should be keeping tabs on.
If you are an eligible TechMarketView subscriber you can read the report here, otherwise please contact Deborah Seth for details about our subscription packages.
Posted by Angela Eager at '18:28'
Salesforce.com is going where it thinks the money is. Hard on the heels of a year in which revenue grew 41% in Europe (see here for the FY14 results), the cloud pure-play has announced plans for further investment in the region. This includes new data centres in the UK, France and Germany (with the first opening in the UK in August 2014, in Slough as previsouly announced) and 500 new jobs in the European region during fiscal 2015.
A desire to capture a sizable share of the UK public sector market is one of the drivers and a UK data centre will certainly help that but Salesforce.com is also looking for more business from other market sectors that are subject to data residency (and data use and transfer) restrictions and regulations, such as financial services. The moves will no doubt bring more business (and help it achieve its raised FY15 guidance of $5.3bn) but also increase Salesforce.com’s already high cost base, moving thoughts of profitability even further into the future. Doubling down on Europe could also be a sign that the rate of growth in its home market is slowing so it needs to accelerate other markets.
Posted by Angela Eager at '16:27'
With expanded partnerships with Dell and Deloitte, NetSuite is out to break some of the SaaS back office barriers.
In recent days SaaS ERP provider NetSuite announced a change in its relationship with Dell which will see Dell move from a simple NetSuite reseller to a partner who will integrate its application services offerings (e.g. implementation) with NetSuite’s ERP software to create more of an end-to-end service. What is interesting is that contracts will be between Dell and the client - NetSuite will have no commercial contact - which is a significant change to the original SaaS model of a direct relationship between provider and consumer. We predicted 2014 would see changes in the SaaS model. Microsoft has similar existing arrangements with some of its Dynamics suppliers but with NetSuite now adopting this hands-off approach there is clearly more activity in this area. SaaS providers need some compensation for this loss of direct contact and for NetSuite this appears to be better access to large enterprise accounts to push the two-tier ERP model, and access to vertical markets.
Two tier ERP and vertical market access also feature in the rationale for NetSuite’s strategic alliance with consulting firm Deloitte. Deloitte will offer a range of services including consulting, change management and financial transformation, along with experience in vertical sectors.
The interest these services providers are showing in NetSuite indicates the demand for SaaS provisioned ERP and the need for providers to refresh their portfolios to meet the demand from large enterprises as well as SMEs. Their focus on vertical solutions should help break down the barrier to back office SaaS solutions in large enterprises too, which have remained resistant so far.
Posted by Angela Eager at '16:01'
Readers attending any of my ‘State of the ICT Nation’ talks over the last few years will be well aware of my predictions that the ‘connected car’ will become as important as the ‘connected home’. Indeed most new cars today come with at least an option of a WiFi hub enabling the ‘little angels’ in the back seat to continue playing Minecraft with their mates even when on the move. Although clearly there are lots of other applications too!
Today Apple made a well anticipated move to become the interface of choice in your car with the launch of CarPlay. It’s basically an iOS7/iPhone-like interface for the dashboard of your car. Allowing you to do all the things you can do on your iPhone (indeed, you need an iPhone for it all to work!) via a Siri or touch activated dashboard interface.
Volvo, Mercedes-Benz and Ferrari are the first to announce CarPlay in their cars with BMW, Ford, Kia, Nissan, Mitsubishi, Toyota and Jaguar soon to follow.
Back in 2003, as part of my Martini Moment speech, I said I envisaged a day when I would get in my car, say ‘play the Rolling Stones Brown Sugar’ and drive off. That day has arrived.
Of course, Apple will not have it all their own way with an Android version out soon.
Anyone lucky enough to have been in a Tesla will know that their dashboard already looks like a double sized iPad. I still don’t think Apple buying Tesla is as fanciful as some would suggest…
Posted by Richard Holway at '14:41'
Last week, Steria announced its FY13 results. For multiple reasons, the UK business stole the show (see 'A promising year ahead for Steria'). Though organically revenue declined by 1.4% to €691.5m, this was the most positive result of Steria’s major geographies; France declined by 5.6% and Germany by 1.6%. In addition, the UK performance rebounded in Q4 with 5.5% growth, notably driven by public sector. With a 10% operating margin, the UK now accounts for 40% of Group revenues and 63% of Group operating margin.
Steria’s performance in FY14 will be significantly boosted by the Cabinet Office SSCL deal (see Steria & SSCL: a pivotal deal). In UKHotViewsExtra, Georgina O’Toole considers the performance of Steria UK in FY13, the importance of the SSCL contract, and the FY14 outlook. If you are not yet a subscriber, please contact Deb Seth to find out more.
Posted by Georgina O'Toole at '14:10'
Civica is on the acquisition trail again, acquiring Coldharbour Systems to extend its position in the health and care sector much as we predicted in January (see Civica: Ambitious plans for growth through 2017). Coldharbour is a respected provider of financial, accounting, staff and care management systems to the UK care sector based in Bristol. The terms of the deal were not disclosed.
The Coldharbour acquisition is very much in keeping with Civica’s focus and strategy. The bolt-on purchase extends Civica’s presence and expertise in a sector adjacent to its existing customer base. Civica will be planning to offer its broader product set, including cloud and managed services, to Coldharbour’s 160+ customers across residential, community, nursery and mental health care services.
Coldharbour looks like a good fit with Civica on a number of levels. Indeed, both companies already work together at major customers including The Priory, RVS and Four Seasons Healthcare and Civica’s electronic document management software is a key component of Coldharbour’s e-compliance offering. Financially, Coldharbour also appears to be a strong business. Its turnover has been around £6.4m for the last two financial years (some 86% of which is recurring) with PBT of £1.1m in FY13, over £6m of cash in the bank and 80 employees. It will make a sizeable addition to Civica’s growing UK health and care business, which brought in just £13m (+43% on the previous year) of Civica’s £213m FY13 revenues.
We doubt this will be the last acquisition we see from Civica in 2014 as it continues on its quest to become a £100m EBITDA business by 2017 – that’s more than double its FY13 EBITDA. As we said in January, we expect further investment in growth areas such as its cloud solutions and infrastructure, BPO capability and in existing markets, including healthcare.
Posted by Tola Sargeant at '09:50'
Hot on the heels of last week's new CEO announcement (see Serco appoints new CEO from energy provider), Serco is now bringing on board three new non exec directors (NEDs), who will oversee a committee for ‘the ethical and governance oversight of the Group as well as consideration of health and safety, environmental and risk policy management’.
The NED appointments have some pretty impressive credentials. Mike Clasper CBE has been group CE of BAA and chairman of HMRC, and is currently chairman of Coats plc and Which?, and president elect of the Chartered Management Institute. Tamara Ingram OBE is currently EVP of advertising giant WPP, Trustee of Save the Children, and a former Sage Group NED. Rachel Lomax meanwhile, has been deputy governor of the Bank of England from 2003 to 2008, permanent secretary at both DfT and DWP, and is now also NED at HSBC Holdings, The Scottish American Investment Company and Heathrow Airport. These people clearly have very busy day jobs on top of their new commitments to Serco.
It is good to see more women being brought to Serco’s top management table. Serco now has three female NEDs (Tamara Ingram, Rachel Lomax and Angie Risley, who is HR director at Sainsbury’s), and three male NEDs (Malcolm Wyman, Ralph D Crosby and Mike Clasper). So there is plenty of depth and breadth of experience from the NEDs, and a balance of genders - all good news for future NED and management meetings.
For detailed analysis on Serco's turnaround story see our recent BusinessProcessViews report (Serco rebuilding trust with UK Government - lessons for all Government suppliers).
Posted by John O'Brien at '08:42'
Two top Microsoft executives are set to leave the company as the management team is reworked under the auspices of fresh CEO Satya Nadella. According to media reports, VPs Tami Reller who heads up Windows marketing and Tony Bates the former Skype CEO who is in charge of business development, are leaving. Bates (reported to be a former CEO candidate) is said to be going immediately, Reller will stay to cover the transitional period.
In addition, VP Mark Penn, who handles advertising and strategy, is slated to become chief strategy officer. Penn, who came from the world of politics and was originally a Steve Baller appointment, was also said to be a candidate for the CEO role. These moves, which are expected to be confirmed in the coming days, follow the shuffle last week that saw Julie Larson-Green move from the head of hardware development to the top spot at the My Life and Work team within the Applications and Services Group. Former Nokia CEO Stephen Elop will take her place.
Microsoft has not confirmed the moves but high level executive changes are to be expected and can only be a positive given the challenges ahead (see What will Microsoft look like under Satya Nadella?). It is an opportunity for Nadella to bring in new people who can bring a different perspective to the company and add the fresh DNA that was not injected when he was promoted from within. It is a time of opportunity for Nadella and Microsoft that should not be lost through conservative change.
Posted by Angela Eager at '08:33'
I have just caught up with Stewart Smythe, CEO at Adapt. Smythe talked me through the company’s performance in the latest full financial year, to end June 2013. There are essentially two parts to the business: its legacy co-location and network services business, which in line with strategy is not a focused growth area (revenue = £30.6m, roughly the same as the previous year). Conversely, its managed services business (hosting and IaaS), which is its main focus, grew organically by 19%. Total revenue increased 6% to £47.8m.
FY13 investments in data centre capacity (£2m) squeezed the EBITDA margin from 12.7% to 11.1%. Smythe says it will probably take 2.5-3 years to fill this capacity – at which point Adapt may well be under different ownership. Indeed, Adapt is just one of a whole bunch of private equity backed data centre services firms – such as Attenda and Pulsant – that could be sold in the near term. (The sale of Control Circle – see Alternative Networks buys Control Circle – is a recent example). Adapt is backed by Lyceum Capital, who we think might consider an exit within the next two years.
In the mean time, Adapt’s strategy is to focus on growing its managed services business – where we think market conditions are very favourable. Right at the end of FY13, Adapt acquired Leeds-based managed hosting firm, Sleek (see Adapt acquires Sleek), which will add c£3m to the topline. Furthermore, we wouldn’t rule out additional acquisitions down the line.
Adapt wants to support its organic growth by increasing its channels to market through partners. It already has arrangements with product vendors, ISVs and system integrators and aims to build on these. If it can increase indirect sales, on top of maintaining direct sales and possibly making another acquisition, Adapt should be in for another year of strong growth. Furthermore, we also understand that the EBITDA margin in the year so far is ticking up again. That should certainly keep the private equity chaps happy for now.
Posted by Kate Hanaghan at '08:23'
AIM-listed cross-border payments provider Earthport produced half year results to the end of 2013 today showing revenue up an impressive 81% to £3.32m, including two months of foreign exchange broker Baydonhill, acquired in November (see Earthport – transforming cross-border payments, here). Losses before tax, acquisition costs, interest and share based payments matched revenue at £3.3m, although last time losses were twice revenue – so at least heading in the right direction.
Earthport is moving quickly to build a global network for the execution of medium-size payments (typically less than $50k) and to establish itself as a low-cost and reliable alternative to in-house systems and the use of cumbersome correspondent banking relationships. The global network of payment rails has expanded to 60 international routes with increased credibility and the World Bank investment in the company opening doors for further expansion.
The acquisition of Baydonhill also allows Earthport to provide FX services to banking clients (and take a turn), although the benefits have yet to kick in with gross margins more or less flat at 77% for the half year.
Another key move has been to sign up Bank of America on a global basis, see here, with the bank taking a stake in the company. This will drive additional investment in the Earthport network and services, accelerating the company’s move to establish itself as a de facto standard for cross-border payments.
Lots still to do, certainly, but with analysts forecasting EBITDA positive in the next fiscal year and continued infiltration into the global payments ecosystem – Earthport is one to watch.
Posted by Peter Roe at '07:54'
I stand corrected! Grubhub - the soon-to-IPO, US-based online meal delivery service that I wrote about last week (see Anchors aweigh!) – is in fact profitable! Their SEC S-1 filing reveals net income last year of $6.6m (15% down on 2012) on revenues of $137.1m (67% higher than 2012).
They aim to raise $100m through the IPO though as yet there is no indication as to proposed valuation. But even if they were floating as much as 25% of the company to gain those proceeds, that would still value the company at 3x revenues and 60x earnings (historical). Repeat after me: meals on wheels, meals on wheels …
Posted by Anthony Miller at '22:38'
- 1 comment
Five years ago...
Five years ago this week, the BoE took the momentous decision to cut interest rates to 0.5% and start QE/’printing money’. Exactly five years ago, on 3rd March 2009, the FTSE100 hit its financial crisis low of 3512. It has since risen by 94%.
But that is ‘as nothing’ compared to the tech indices we follow which also hit their financial crisis low this week five years ago in March 2009. Since then NASDAQ is up 233% and TechMark100 up 192%. The Support Services Index is up 181% and the FTSE Telecomm Index is up 132%.
But the FTSE SCS Index – which most closely tracks the SITS companies we report upon in Hotviews - is up more than any at a massive 235%. There was me ‘bragging’ about the performance of the Holway Portfolio in the period when all it had actually done was keep up with the Index!
Feb 14 continued the ‘ever upwards’ trend with a 4.6% rise in the FTSE100 – now nudging its all time high – a 5% rise in NASDAQ and a more modest 3.7% rise in the FTSE SCS Index.
The FTSE Support Index did best – up 7.4%. This was mainly on the back of a 15.9% rise in Capita (See Capita hits 8% organic growth) But other constituents like PageGroup was up 13.9% (See UK still growing for PageGroup) and even SThree put on 11% (See SThree looks to more internationalism)
In UK SITS, Promethean World was up 27%. See Promethean whiteboards still in the red. Although this is just a minor recovery from the turgid time they have had as quoted company over the last 4 years. Escher Group was up 25% (See All going to plan at Escher). Even RM was up 20% (See RM reports eventful but positive 2013)
At the other end of the scale Digital Barriers (See Knocking down digital barriers to break even) was truly hammered with that unexpected profits warning. I’m told it was mainly timing and, as it is still in the Holway Portfolio, I certainly hope so Mr Black! EG Solutions continued its downwards slide – 22% in Feb/38% YTD – since John O’Connell quit as Exec Chairman. See EG Solutions hoping to leave turbulence behind. And Blinkx fell another 22%/51% YTD as the effects of that pesky blog, questioning their trading methods, hit. I rather publicly admitted (See In the Press) to selling my shares at that point – a very sensible decision as it turned out.
On the global front, Mastek was up 20% (See Mastek holds steady and Mastek scores home run at Home Office) , Sopra up 13% (See Mixed year for reshaped Sopra) and Capgemini (See Capgemini FY13 – Strong growth in UK private sector) managed a 12% rise. Surprisingly there were no significant fallers amongst the global majors we follow.
All the pundits seem to be forecasting record highs in 2014. Maybe. But there are many storm clouds on the horizon – China’s debt, the slowing of the BRICs, the detrimental effect that a rate rise would have on consumer spending, referendum on Scotland, EU and a General Election, war in the Ukraine etal. Sleep easy please.
Posted by Richard Holway at '18:37'
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