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Posted by HotViews Editor at '17:20'
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'Transforming Legacy' is one of our core themes for the UK Business Process Services (BPS) market in 2016 (see Predictions 2016 Business Process Services). As the adoption of Business Process Automation and other digital technologies accelerates, the need to transform the ‘legacy' business has become a critical do-or-die issue for providers.
'Legacy’ applies to BPS providers who have focused too heavily on Lift-and-Shift BPO to grow their business and build market share. And it also applies to others who haven’t moved fast enough to embed new technologies and services across their BPS operations, and have become over-weight and sluggish in their ability to grow and innovate.
BPS providers have to set the pace for their customers, transforming their own operations in order to support their customers in their own digital transformation agendas. The reason - they cannot profess to be expert in digital if they are not genuinely embedding these approaches across their own businesses. This often means taking some very tough decisions, to radically improve operating productivity and efficiencies through the use of new BPA and digital technologies.
Subscribers to TechMarketView's BusinessProcessViews research stream can read the analysis of and implications for BPS providers in our new report here - 'Transforming Legacy' - Critical for BPS providers in the Digital Era.
If you're not yet a subscriber and would like to become one, please contact Deb Seth (firstname.lastname@example.org) who will be happy to help.
Posted by John O'Brien at '14:35'
Having raised £5m to fund acquisitions earlier in the year (Instem raises £5m for acquisitions), it comes as no surprise to hear that Instem is parting with some of that cash to bring UK-based Samarind on board. Instem, which provides IT solutions to the global early development healthcare market, is paying a total consideration of £2.5m for Deeside-based provider of Regulatory Information Management (RIM) software to the life sciences sector. Payment will be in a mixture of cash and new ordinary shares: £1.5m on completion, £0.65m of deferred consideration and a further £0.35m dependent on the financial performance of Samarind.
This looks like a neat acquisition for Instem. It supports the company’s strategy of expanding organically and acquisitively into adjacent market areas, particularly those having strong regulatory drivers for technology adoption. Samarind’s RMS software, which helps to achieve and maintain compliance for pharmaceutical, bioetch and medical devices, will extend Instem’s portfolio of data exchange and management software solutions, with which it has already had notable success (see Instem in fine fettle at full year). It will also provide additional opportunities for outsourced regulatory services. Importantly the software is designed to adapt to evolving global standards for exchange, formats and terminologies, as set by the European Medical Agency (EMA).
This is a bite-sized acquisition for Instem, which made revenues of £16.3m last year. Ten-employee Samarind made sales of £1.2m and operating profits of £0.4m in its last financial year to 31st March 2016. At year end it had net assets of £0.04m, including £0.68m in cash and no debt. Instem expects the acquisition to be earnings enhancing from 2016 onwards.
Posted by Georgina O'Toole at '09:44'
It’s always gratifying to hear success stories from TechMarketView Little British Battler companies.
Indeed, Cambridge-based data analytics firm, Featurespace, has featured many times in UKHotViews and does so again with news of a further $9m (£6.2m) funding round led by US-based VC TTV Capital along with existing investors including Imperial Innovations, Nesta, Cambridge Angels and Cambridge Capital Group. Imperial led a £3m funding round for Featurespace almost exactly two years ago (see IVO believes in Featurespace innovation), following an initial £1.5m round in 2012 (see here).
Founded in 2005 as an analytics consultancy, Featurespace was among the first companies to participate in the TechMarketView Little British Battler programme in 2012 (see our first Little British Battler report). Now the company styles itself as ‘a global leader in machine learning fraud prevention using Adaptive Behavioural Analytics’. Onwards and upwards!
Posted by Anthony Miller at '09:36'
Kainos’ first full year results since it IPO’d last July show that it has continued to motor with a strong performance reported across the business and record levels of revenue, profit and orders. In the year to end March 2016, revenue grew by 26% to £76.6m, PBT was up by 20% to £14.3m and sales orders were 11% higher at £87.2m.
The bulk of the revenue continues to come from the Digital Services division, which delivers customised online digital solutions principally for central and regional government in the UK. Turnover from Digital Services increased by 11% to £48.5m although gross profits at the division decreased slightly to £21.9m (FY15: £23.1m) largely due to issues with one large government contract that led staffing profiles on the programme to be readjusted.
Kainos’ healthcare business, Evolve, went from strength to strength as it launched a new cloud-based Integrated Care product alongside its EMR offering. Revenue at the division increased by an impressive 112% to £19.1m, gross profits were up by 115% to £10.1m and SaaS sales orders went from nil in FY15 to £3.4m. The group’s other division, WorkSmart, saw turnover increase by 10% to £9m and gross profits climb by 9% to £5.1m. It provides consulting, project management, integration, support and testing services for Workday Inc’s software suite.
Across the Group, the UK remains the dominant region with £65.3m of revenue, up by a stonking 24% (all organic) in FY16. There is a more international flavour to the business though and 15% of revenue is now accounted for outside the UK. Kainos signed $13m of international deals over the last twelve months as its footprint in the US and its business with Workday in Europe grows.
All three of Kainos’ divisions appear well-placed for continued growth into 2017. Digital programmes continue to be the order of the day in UK central government. Kainos is winning business with existing clients, such as the Home Office, and making progress in new business with departments such as the Ministry of Justice, where its consultants are working on the Criminal Justice System Efficiency programme. It is also expanding its presence in regional government, where revenue grew 111% to £7.8m in FY16, and sees opportunities in the Welsh and Scottish Assemblies as well as the Northern Ireland Civil Service. Indeed, with additional funding available for NHS digitisation this year and partner Workday also showing very strong growth, Kainos’ biggest challenge in the year ahead could be deciding which opportunities to focus on!
Posted by Tola Sargeant at '09:36'
Everything seems to be going smoothly at broadly-based online payments services provider Paysafe after a transformational year, see here, which included doubling its size through the acquisition of Skrill and the move to the main board of the LSE, see here. Recent trading also appears robust, particularly in Payments Processing and Digital Wallets. Management now suggests that EBITDA forecasts for the current year can be tweaked upwards to US$270-276m, with a revenue range of US$950-970m.
Despite several equity placings (including funding the Skrill deal), the share price is up 50% over the year and around 4x what it was three years ago. So management can be justifiably pleased with progress.
Nevertheless, the AGM last week should give them pause for thought and serve as a warning for other companies going through periods of rapid change. Shareholders voted against the acceptance of the Remuneration Report, criticising the loose arrangement that had been used to remunerate the President & CEO and the CFO over the past year. This had resulted in the payment of “one-off”, large equity awards to re-establish a position of “fairness” (according to the Annual Report). The shareholders were however willing to agree the new Remuneration Policy and the setting up of a Long Term Incentive Plan which now establishes more rigorous benchmarks and targets against financial performance and shareholder returns.
I won't enter into a lengthy discussion of management pay and the issue of the escalation of top executive rewards, but the lesson is clear. Setting remuneration in a rapidly developing company is difficult and requires high levels of communication and trust between executives, NEDs and shareholders. Paysafe now seems to have got things sorted, but shareholder grumblings over pay can only diminish the brand of any financial services company.
Posted by Peter Roe at '09:00'
A couple of years ago, Hewlett Packard (as was) ceded its crown as the leading supplier of IT and business process services to the UK market to 'home-grown' Capita.
But will the merger of CSC with the Enterprise Services business of (now) Hewlett Packard Enterprise topple Capita from the top spot in 2017 and beyond?
We will be presenting our ‘first response’ analysis of the potential impact of the deal on the UK software and services in a series of UKHotViews Extra posts, exclusively for TechMarketView subscription service clients. The merger was announced on 24th May 2016 (see here) and is expected to close in March 2017.
In our first UKHotViews Extra post, TechMarketView Managing Partner Anthony Miller looks at how the proposed merger could affect the UK supplier rankings. In future posts, TechMarketView Research Directors will look at the deal from the perspective of key UK services segments and vertical sectors.
Posted by HotViews Editor at '08:34'
Indian Pure Play (IPP) Tech Mahindra is planning a big splash in the UK, with the intended acquisition of Target Group, the privately-owned Business Process as a Service (BPaaS) provider to the lending and insurance markets.
Tech M's move is the latest by an IPP to acquire BPaaS capability within the BFSI sector, following Wipro’s purchase of US-based Viteos earlier this year (see here). It shows that the platform BPaaS space is now ripe for consolidation as the IPPs seek to transform their legacy business process services (BPS) businesses.
Subject to FCA approval, Tech Mahindra will pay current private equity owners Pollen Street Capital £112m for the 800-person strong Target Group. Co-Group CEOs, Ian Larkin and Bill Alley, will apparently stay on to ensure continuity and drive the current strategy.
Cardiff-based Target Group is a company we have been following for a while, as an emerging disruptor within its market sectors (see Target adds Hope to growth story and work back). It uses its own platform technology to offer BPaaS in areas like loans and mortgage servicing, insurance policy administration, investments and broking, for big name clients like Goldman Sachs, Credit Suisse, LV, Shawbrook, NFU Mutual and Morgan Stanley.
Being part of a much larger company with international reach will give Target Group plenty of opportunity to scale further across broader sectors and geographies. We hope to speak with management shortly to provide more on this significant deal.
Posted by Peter Roe at '16:44'
Struggling UK managed service provider Pinnacle Technology Group balanced its recent self-induced deflation with an acquisition, buying Warrington based IT services company adept4 Limited for £5m of unsecured loan notes to the Business Growth Fund (BGF).
We think the deal brings a source of much needed revenue to Pinnacle, with adept4 having generated £5m of revenue in FY15 with EBITDA of £750,000. If Pinnacle can keep hold of them, adept4’s client base of around 60 customers on long term 3-6 year contracts will provide further stability, estimated to currently deliver 67% of recurring revenue from managed IT service contracts, software support and development, and professional and cloud services.
Pinnacle executive chairman Gavin Lyons described the acquisition as a ‘pivotal moment’ – apt for a company that has spent the first half of the year selling off its unwanted and unprofitable assets as it tries to transform itself into an IT as a Service company for SMEs.
The BGF is an independent fund launched in 2011 to provide long term equity capital to smaller companies that would struggle to secure investment from elsewhere. It is backed by Barclays, HSBC, Lloyds, RBS and Standard Chartered, and has an estimated war chest of £2.5bn.
It clearly does not view Pinnacle as a terminal case, at least not yet, and sees promise in the efforts being made by tech merchant bank (and TechMarketView Little British Battler sponsor) MXC Capital to turn Pinnacle around.
Posted by Martin Courtney at '09:39'
Part of Sage’s transformation necessarily involves changes to its partner ecosystem, which it kicked off in October 2015. A big part of the change is moving to a global system from the multi country and multi product based model of old.
An update on how it has progressed during H1 indicates the ship is moving, with the number of channel programmes significantly reduced and foundations for further change in place, from assets to streamline partner onboarding to more of a focus on encouraging partner business development.
Business development is the nub of the matter. We see Sage looking to partners to take its revamped strategy (see the HotViews archive here for the many facets and progress) to market but also to boost its overall growth rate from the stable 5%-6% range, and to really drive cross sell activities as it pursues its ‘golden triangle’ of accounts, payments and payroll.
That calls for substantial change among partners at a time when they are also navigating the shift to the cloud model. Some will not make the transition to multi product SaaS and mobile driven cross sell capability and Sage accepts there will be losses, although it expects the overall number will remain broadly the same as joiners compensate for leavers. Our interpretation is that partners need to be proactive and there is no place for complacency.
Making this change is not going to be easy – Microsoft has struggled with similar plans to get more of its partners to take a broader set of products. New partners - of the right type - will be key so we’ll be watching out for this at the Sage Summit in July. Early whispers are that we’ll see different types of partners coming on board.
Posted by Angela Eager at '09:37'
The name sounds like a type of kebab, but at least it comes top of a Google search. But it’s a shame that its mission statement uses words like ‘democratise’ as that’s just far too pretentious.
I’m talking about Guildford-based education app platform startup, Zzish, which has recently raised a further £700k in a crowdfunding round, roughly doubling its total funding since it was founded in 2013 by ex-Google product manager, Charles Wiles. Zzish’s backers include Leaf Investments and other ‘edtech’ investors.
What Zzish is (at least, if I understand it right) is a portal that channels access to the multitude (they reckon 200k) of education-orientated apps out there in app-land. There’s some dashboard stuff as well.
Sounds great – really – but I do wish startups would stick to plain English in their mission statements. Actually, I wish they didn’t have mission statements at all. Just tell us what your ‘thing’ does, nice and simply, and why it’s different. We can work out the rest.
Posted by Anthony Miller at '09:25'
UK communications service provider KCOM Group posted flat FY16 results with audited revenue static at £348m and EBITDA growing 0.8% to £74m. The company notched a pre-tax profit of £48m, down 7% yoy despite the £44.5m profit it made from selling off network assets to CityFibre for £90m. Earnings per share dropped 4.7% to 7.54p
Significant internal reorganisation (and £4.1m of restructuring costs) divided the business into two segments. KC (Kingston Communications), which provides telephone and broadband services to a pool of residential and small business customers over the company’s own network in Hull and East Yorkshire, turned over the same £105m it did in FY15.
With limited growth capacity in a small regional market, KCOM is pinning its expansion hopes on communication and collaboration services for enterprises and SMBs on a national level. But traction here too is at a standstill with revenue up to £250m from £249m in FY15 and EBIDTA barely moving at £26.1m.
Much rests on Smart421, the Ipswich based IT consultancy and systems integrator with a strong focus on combining network connectivity with cloud hosting that KCOM paid £24m to acquire back in 2006.
KCOM’s decision to prioritise higher margin larger contracts at top 100 accounts and ignore core network connectivity deals for smaller businesses looks risky but necessary in a commoditised broadband market fixated on price and dominated by much larger telecommunications players.
Ongoing contracts with HMRC and NFU Mutual, plus FY16 wins with ATOC, BUPA and Shoosmiths have failed to move the needle however. KCOM must now prove it can successfully layer value added cloud hosting elements on top of WAN links at a cost which marks it out from the competition while simultaneously consolidating its operational expenditure to drive profits.
Posted by Martin Courtney at '08:57'
Watchstone, the recently ‘born again’ Quindell, has released its full year results, which show a company flat-lining. Revenues from the underlying business were ‘steady’ at £58.3m vs. £56.5m last time. The underlying EBITDA loss was also no different at -£16.8m (vs. -£16.8m). Cash nudged up to £103m.
Watchstone says it is ‘focused on managing the Group's operating, contingent and cash assets in order to achieve the maximum value possible, whilst always ensuring good governance’.
This sounds very much a case of sitting tight till a sale can be achieved. In April, it rejected what it called a ‘highly conditional, non-cash bid’ from a PE investor (see here). Management will be doing well if they can find a buyer prepared to take on the business on their terms.
Posted by John O'Brien at '08:39'
We can now guess the rationale for the timing of Meg Whitman’s long-awaited decision last month to announce the sale of HPE’s majority stake in Bangalore-based Mphasis (see Blackstone India buys HPE’s stake in Mphasis): Mike Lawrie didn’t want to have that albatross hanging around his neck when CSC picks up HPE’s Enterprise Services unit (see HPE hives off Enterprise Services to merge with CSC).
To be fair, Mphasis is a perfectly respectable mid-tier offshore services player. But it lives in a half-world where some 40% of the stock is still in public hands – a legacy from the original majority stake purchase by the erstwhile EDS almost 10 years ago to the date. What could have – and should have – been a savvy move to boost EDS’ offshore services capability, had they gone on to complete the minorities buyout, turned into a compete fiasco as Mphasis went all ‘fifth column’ on its new parent and decimated its business with EDS (now HPE) clients.
Indeed, Mphasis closed its latest FY (to 31st March) with barely a quarter of its revenues deriving from the ‘HP Channel’. When EDS acquired the stake, it was more like two-thirds. And it wasn’t a great year anyway for Mphasis. Headline revenues grew by just 5% to Rs60.9b, though by my calculations this was more like a 2% decline in USD terms, to around $930m. However, operating margins improved a tad to 13.5% (FY15: 13.3%).
Well, Mphasis is Blackstone’s problem now – or soon will be – relieving Mike Lawrie of the distraction of having to struggle with a renegade business unit with noisy external investors while he gets on with the real job in hand.
Posted by Anthony Miller at '08:39'
The deadline for applications for the 2016 WCIT Enterprise Awards is 31st May - so really FAST APPROACHING. Many of TechMarketView's Little British Battlers have gone on to win one of these awards. So we really would encourage you to apply.
Our dear friend John O’Connell established these ‘Oscars for UK Tech Entrepreneurs’ some six years ago. TechMarketView – together with such notables as Sage, techUK, Cobalt Corporate Finance, Smith &Williamson, Questers, Innovation Warehouse and ScaleUp Group – are sponsors. We – that is Anthony & I and other TMV Research Directors - will be there at the glittering Awards Ceremony on 30th June 16 at the Brewery. We’d love to see you there too.
The Award categories are as follows:
Email email@example.com for an Application Form. Or download Click Here. I am a judge (again). Not that I can be bribed of course…
We promise suitable publicity for all the winners on HotViews. What more glittering prize could there be?
Posted by Richard Holway at '12:02'
This week’s announcement by Capgemini that it has embarked on a joint engagement with Siemens Building Technologies Division to provide analytics-based services for connected buildings piqued our interest. Capgemini will work with Siemens to implement a cloud-based services platform featuring asset management and analytics technology.
To the partnership, Siemens brings its web-based Energy & Sustainability Navigator platform for monitoring and analysis, while Capgemini brings its capabilities in IoT, data analytics and cloud. The results will be that the Navigator platform will be continually enhanced to provide Siemens customers with the ability to meet energy efficiency goals and maximise the lifecycle potential of their real estate assets.
The partnership makes perfect sense for both parties, as they draw on their strengths to provide customers with actionable insights via digitisation. The applications of data analytics are far and wide. But for Capgemini, being able to access data from embedded technologies/sensors opens up another part of the market; in this case, in the ‘smart buildings’ space. As Capgemini (and other SITS players) face a multitude of deflationary pressures in their traditional businesses, opening up new opportunities focused on embedded technologies is one way to find new revenue streams. Only a handful of companies will be able to tap into this market without the need to enter into partnerships or acquisitions. Notably, in July last year, Sopra Steria acquired CIMPA SAS, an Airbus subsidiary specialising in Product Lifecycle Management (PLM); it provided the foundation for the company’s ‘scientific, technical, industrial and embedded software engineering practice', which may offer the capabilities required to develop a similar service to the Capgemini/Siemens proposition. Meanwhile, recent partnerships have included those between SAP and Telit (see SAP and Telit partner to develop IoT potential) and Dell and Utilitywise (see Dell partners Utilitwise for IoT expansion). As the IoT market builds, the number of IoT partnerships is increasing and is embracing all types of supplier. The activities of the SITS providers will be interesting to watch in the months ahead.
Posted by Georgina O'Toole at '09:45'
Some of the TechMarketView team spent an insightful day with TCS at its UK Innovation Forum earlier this week, where the theme was innovating in the hyper connected world. With input from customers, partners and the TCS team there was plenty to chew over.
One consideration was how organisations are reacting to the digital shift/digital customer, with a neat illustration from CTO K. Ananth Krishnan of how this is blurring the boundaries between industry sectors because businesses have to cover so many areas to meet the demands of their digital customers. Virtually every industry is crossing into adjacent ones as they rethink sector boundaries in the hyper connected world. Amazon is in the retail, payments, devices, infrastructure, drones and enterprise spaces for example; while Apple operates across devices, media, comms, software, wearables, retail and payments. The blurring is evident beyond these headline companies - think telco/media, tech/automotive, retail/finanical services etc - and a business will typically cross into multiple industry sectors.
The message is that businesses cannot operate within traditional lines. That’s true enough and it also highlights the complexity and therefore one of barriers to the shift to digital, which is why we continue to hear of small scale serial projects across the market, that help enterprises progress but are a challenge for suppliers to scale down to.
One of the other takeaways was the shift towards intelligent operations through the combination of analytics and automation – the point being that the combination is critical because as separate entities automation is dumb and offline analytics too slow. Naturally, TCS has a solution in the form of its “neural automation” ignio system but the move towards intelligent operations, intelligent software, intelligent automation is gaining momentum, as we have highlighted in Business Process Automation: What is Intelligent Automation, and our series of reports on machine learning. Automation and machine intelligence is shaping up to be a major market disruptor.
Posted by Angela Eager at '09:33'
Salesforce is set to expand its current deal with Amazon Web Services (AWS) to help with its international expansion. Salesforce already uses AWS for Heroku, SalesforceIQ, and the recently announced Salesforce IoT Cloud. This deal sees it shifting more of its services onto AWS, including Sales Cloud, Service Cloud, App Cloud, Community Cloud, and Analytics Cloud.
Although no specific statement regarding value has been made, deep inside Salesforce’s 10Q there is reference to a “third party provider for certain infrastructure services for a period of four years” – valued at $400m. Various media outlets have been able to get confirmation that this refers to AWS. Whichever way you look at it, that’s a fairly sizeable sum. Salesforce might not be your typical enterprise customer (let’s face it, it’s not going to need convincing that the cloud is the way to go!), but it’s still a major win for AWS given the size of the workloads. Furthermore, it’s a jab in the ribs for Oracle with Salesforce opting for AWS over its embryonic public cloud business.
Our estimates for AWS’s UK business indicate that it is fast moving up our ranking of infrastructure services suppliers. It may not be taking huge chunks out of the core business of outsourcers just yet, but it is certainly nibbling at the edges. This, combined with contracts in its heartland (start-ups and smaller firms), plus its ability to bring ‘new money’ into the market (IT departments that are switching internal spend for the public cloud) is enough to help it register phenomenal growth.
Posted by Kate Hanaghan at '09:23'
Security specialist Sophos saw FY16 revenue increase 7% yoy to US$478m (16% on a like for like basis), though the company’s IPO in June last year lead to an operating loss of US$33m.
Making money out of data security in the current climate may be a bit like shooting fish in a barrel as public and private sector investment in cyber defences remains high. But suppliers still have to get the balance of new and old business right and deliver solutions across hardware, software and cloud platforms which cater for every enterprise requirement (just ask Symantec).
Sophos reported strong sales of network and end user solutions across all regions, with billings up 12% to US$535m (20% on a like for like basis). Billings in Europe, the Middle East and Africa (which accounted for 49% of all revenue) increased 3% yoy to US$264m on a reported basis as a strong US dollar took its toll on exchange rates, but grew 16% like for like.
Software subscriptions totalled US$422m, up 10% (17% like for like) but it is sales of higher margin hardware - including firewalls, wireless access points, and web/email gateways - which catch the eye. Hardware billings increased 26% to US$99m (38% like for like), with the network based SG unified threat management (UTM) gaining particularly good traction.
Sophos is successfully bringing in new business - revenue from new customers was up 33% to represent 25% of the total (up from 23% in FY15). Like other security vendors, Sophos is now keen to expand its focus to managed security services. The recently announced MSP program is intended to drive more business through the channel and tempt its partners into adopting a more integrated approach which gives customers greater control over the multiple security platforms they currently maintain.
Posted by Martin Courtney at '09:09'
Lombard Risk Management (LRM), the specialist provider of integrated collateral management, regulatory compliance and reporting solutions for the financial services industry, has tumbled into the red in FY15 in its quest to deliver strong growth.
For the year ended 31 March, top line revenue was up 10.3% to £23.7m. However, a pre-tax profit last time of £2.3m reversed into losses of £2.2m. LRM has spent the year making ‘significant investment’ in its products, sales, a new exec team (new Head of Product, CTO and CEO) and in its new strategic relationship with Oracle America. Product investments alone were up 16% to £5.9m to keep ahead of the competition. These initiatives are going to need ‘continued investment’ this year too.
LRM has been through a lot of change over the past year (see here and work back). It is now refocusing the business on two core products – COLLINE for collateral management and AgileREPORTER for regulatory reporting. This should make the sales process more streamlined and clear for partners and customers. Along with the partnership with Oracle America, there’s every chance for LRM to continue growing at a healthy rate.
LRM is in a good place to help financial services firms respond to ever changing regulatory and compliance demands. But its biggest challenge is going to be converting all this momentum and growth in to profits.
Posted by John O'Brien at '08:43'
I still have no idea why it takes management at Mumbai-based offshore services firm Tech Mahindra a month longer than India-headquartered peers to run the numbers; maybe they want to keep bad news under the covers for a little bit longer.
I say bad news only because Tech Mahindra had the weakest quarter (ended 31st March) than all the other India-headquartered top tier players, with headline revenues for Q4 increasing by just 3.9% to $1.02b, almost flat compared to the prior quarter. This is the fourth consecutive quarter of yoy headline growth decline. Operating profit fell qoq leaving margins well below peers at 13.8%.
Over the FY, Tech Mahindra just made it through the $4b revenue barrier ($4.04b to be more precise), representing 10.2% yoy growth (9.5% adjusted), a huge decrease on the prior year’s 18.2% growth. Even so, Tech Mahindra came second only to Cognizant’s 18.2% growth for the trailing 12 months to 31st March. Tech Mahindra’s FY operating margins, at 13.4%, were down a couple of points yoy; they remain the only India-headquartered top-tier player with margins below 20%.
It seems Tech Mahindra still struggles with ‘bipolar disorder’, some three years since the integration of Satyam was declared complete. As yet there seems to be no cure in in sght.
Posted by Anthony Miller at '08:00'
Anyone involved in the early PCs back on the 1980s will recall the floppy discs that were used – not just for data but for loading programs as well.
The US Dept of Defense yesterday reported that it is still using 8 inch floppy discs ‘in a legacy system that coordinates the operational functions of the United States’ nuclear forces’. Each floppy holds about 80kb of data. Of course, this admission has caused derision in the media. But perhaps that is a bit unfair. If it still works, why fix it?
It is actually quite remarkable how long-lasting computer technology is if you don’t change it. I have a lovely Dell computer still under XP that I use to edit all my photos. It is now 15 years old and still works like a dream. I haven’t upgraded any of the software for years and therefore don’t have it connected to the internet. I will be very sad when it dies.
Same goes for many of the Excel spreadsheets that I use daily for such things as my bank accounts and investments. They contain macros that I first wrote back in the 1980s.
Back in the 1960s I was writing code for a banking system. It is not completely impossible that some of that code is still used today. Although we would all agree that today’s core banking systems are indeed creaking – it is, none-the-less amazing that they still work at all after so many decades. Indeed, in terms of ‘value for money’ they are unbeatable.
Although our industry is built on the concept of constant upgrade and constant change, sometimes the cost and upheaval of the ‘upgrade’ far exceed the benefit
Posted by Richard Holway at '07:44'
Serco’s transformation continues. And the company’s position continues to look fragile. But for now, it has been able to offer the market some good news. Its trading update, released this morning, reveals that the first four months of the year have been stronger than expected. As a result, Serco has been able to up its guidance for the full year to forecast revenue of £2.9b (vs. £2.8b previously) and an underlying trading profit of “not less than £65m” (vs. c£50m previously).
However, this has been possible due to a number of items that will not recur, but have sharply increased profits in H1. Some contracts (in the U.S.) have continued longer than expected. Final settlement arrangements on an exited contract with Northern Rail have been more favourable than predicted. And some continuing projects are producing better results than anticipated. Moreover, the timing of some internal activity, related to the Group’s internal shared services operations and its residual UK onshore private sector BPO operations, have also had a positive impact on profits.
Group Chief Executive, Rupert Soames, sounds a word of warning: “we must remain cognisant that, with underlying margins currently around 2%, our profits are a sliver of reward between two very large numbers - revenue and costs - tiny percentage movements in which can lead to large percentage movements in profits”. So that transformation journey, which will see Serco become a more stable and focused Business to Government (B2G) services supplier, which will continue through to 2020, remains crucial for Serco. For an in-depth look at how the transformation is going so far see the UKHotViewsExtra, Serco FY15 much better than expected.
Posted by Georgina O'Toole at '09:27'
Intuit’s Q3 results exceeded estimates and the company raised full year guidance, but shares still fell in after hours trading.
The bottom line shot up from $501m to $1bn but that was on the back of the sales of Demandforce, QuickBase and Quicken businesses for $463m in cash. The top line also grew, as would be expected in the tax quarter: up 8% to $2.3bn.
TurboTax sales increased by 15% and there was also significant growth in QuickBooks Online, where subscriber numbers bloomed by 45% to c1.3m. This level of growth is impressive and underlines the demand for entry level online accountancy solutions that Sage is also benefitting from with Sage One (see here), and Xero is flying upwards with too (see here).
Capturing emerging and small businesses with online solutions is key for these providers, especially Intuit and Sage who aim to keep them as they grow, so these are important gateway and growth products. Adding capabilities to streamline core processes is key. Intuit is hunkering down on data driven intelligence to help personalise the tax experience for individual users while Sage has a host of hooks and data feeds plus fast developing mobile developments (we expect much more detail on product and partner developments at the Sage Summit in Chicago in July). Understanding the outlook for these suppliers means understanding their entry level online strategies.
Posted by Angela Eager at '08:54'
Last night it was announced that HPE is to spin out its Enterprise Services business (i.e. what began life as the 2009 EDS acquisition) to merge with CSC and create a new services company. Meg Whitman (HPE CEO) argues the move is about staying true to HPE’s intention to become laser-like focused. Although in reality, we wonder to what degree this was actually driven by Mike Lawrie’s (CSC’s President) desire to capture the ES business.
HPE will retain its storage/networking/server businesses, its software assets, its Helion (hybrid/private) cloud platform (note that it recently stepped away from public cloud provision) and its Technology Services and Software Services, worth some $33bn in revenue. Both Whitman and Mike Nefkens (General Manager of ES) will be given roles in the new entity – but as yet we don’t know how the UK team will be affected.
The new combined entity (worth $26bn in revenue) will be what HPE/CSC are calling a “pure-play” services firm – emphasising their view that the optimal way to deliver services it to not combine it with product capabilities. And indeed, it mirrors Dell’s recent move to sell its services business (i.e. what started as the Perot acquisition) to NTT Data.
So that’s two product companies that have tried traditional outsourcing services and that have walked away from it within weeks of each other.
More than ever, we believe that to survive in the services market you’re going to have to be ‘A-grade’ at providing highly automated IT/business process services, with the capability to orchestrate hybrid computing environments. Not least because Amazon Web Services is fast becoming a sizeable player in the infrastructure services market, creating many unknowns and much tension amongst established services players.
If you’re one of our customers you’ll know the challenges the IT services industry faces in terms of growth (UK SITS Market Trends and Forecasts 2015). HPE wants out of that (although ironically, ES did rather well in the UK last year, thanks to the Deutsche Bank and TNT wins). For CSC, the pendulum is swinging the other way – remember it’s also in the throes of bringing Xchanging into the fold. (Both CSC - see CSC FY15 overshadowed by $26bn HPE merger - and HPE announced results today. HPE's ES grew 1% cc in Q2).
While the merger makes sense on paper, we do have some serious reservations about how this will play out in reality. In particular, the task to make the transaction work will be a huge distraction, and therefore an opportunity for competitors to take advantage. We also have to consider the impact on customers – although Lawrie offers assurances that all will be well.
And of course, one of the other big questions is whether this new combined entity (CSC+HPE ES+Xchanging) will be big enough to topple Capita as the UK’s largest SITS supplier. Stay tuned over the coming days as TechMarketView provides more analysis on what the merger means for both the market and industry.
Posted by Kate Hanaghan at '08:44'
Here’s another loss-making AIM minnow which really has no business being on a public market. Imaginatik, the self-styled ‘world's first full service innovation provider’, is to raise some £2.1m by way of a highly dilutive share placing at 2.5p and a 1-for-4 open offer. Imaginatik’s shares closed last night at 3.12p.
Imaginatik was founded in 1996 and listed on AIM in December 2006 with a 7.5p per share placing, valuing the company at £8.7m. It lost money last year (see Imaginatik profits yet to materialise). And the year before. And the year before …
Really, what’s the point?
Posted by Anthony Miller at '08:23'
CSC’s FY15 results were completely overshadowed by the huge news that it is to now merge with the Enterprise Services part of Hewlett Packard Enterprise and create a new company (see HPE hives off services to CSC). The merger is going to take till March 2017 to close. In the meantime, CSC continues as a separate, independent and publicly-listed IT/BP services provider.
CSC (and competitors like HPE) are facing huge challenges as clients move to cloud and other digital technologies (see CSC – read the words as well as the numbers). This is reflected starkly in CSC’s FY15 headlines, with revenue down in double digits (-12.5%) to $7.1bn, and down 6.7% in constant currency (ccy). However, CEO Mike Lawrie has done a sterling job returning the business to profits, delivering a 5.1% margin vs. -2% last time.
There are early signs of progress. Q4 showed revenue down 2.4% ccy and actually up 3% on the previous quarter.
CSC’s two main operating divisions are making their transition from what Lawrie calls traditional to next-generation offerings. However, these are coming in at lower price points. In Q4, Global Business Services fell 1.1% (-3.8% yoy), despite growth in business process services (BPS) and Big Data, due a fall in consulting. Global Infrastructure Services is faring worse – down 3.7% in Q4 (c-10% yoy). Next-gen offerings around Cloud and MyWorkStyle only ‘partially offset’ the decline in the traditional outsourcing business.
CSC also just announced another acquisition of European ServiceNow partner Aspediens (see here). It will add to the recently completed acquisitions of Xchanging (see here and work back) and UXC (see here) aimed at accelerating the shift from old world to new.
Lawrie said this ‘cross-over point’ would be achieved sometime in the second half of fiscal ’17. If all goes to plan, this is when we should see CSC return to organic growth. However, with the pending HPE Enterprise Services merger we would hope that cross-over point will be accelerated even closer.
Posted by John O'Brien at '08:13'
In its H1 update, Analytics-as-a-Service provider Actual Experience talks of looking forward to H2 and beyond with confidence. It certainly has a lot going for it, noticeably the quality partnerships it is racking up with the likes of Vodafone, Accenture, Cisco and Verizon.
As we’ve said before, it needs to start converting these partnerships into revenue and profit streams, something CEO Dave Page referenced in the trading update statement: “while the financial results continue to show growth, they do not yet reflect the significant potential of these agreements”. Those financial results showed a 48% increase in revenue to £486k but a massive hike in operating losses from £1m to £2.6m. Even though it has cash of c£12m and is in growth mode these losses are not sustainable; in particular the deeper losses contrast poorly with the actual revenue regardless of the growth rate.
There is more to Actual Experience than the numbers, as we explored in our analysis here. Its challenge is getting to a stable position before losses and predators take over.
Posted by Angela Eager at '08:12'
Regional roadshows being held across the UK in June will include case studies detailing how you successfully deploy cloud, migration of legacy applications to the cloud and key security considerations when moving to the cloud.
The sessions will be hosted by Skyscape Cloud Services but will include content only from guest speakers with each session chaired by a journalist. Case studies will be presented by central government organisations, as well as BJSS, CACI, Capgemini, Equal Experts and Valtech. The agenda will cover:
The sessions will be held from 12-3pm and a working lunch will be served. Register now by simply selecting your preferred date/location:
Posted by Skyscape Cloud Services at '00:00'
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