Articles tagged: results

• Wednesday 10th March 2010

  StatPro builds a strong niche in asset management

  StatPro is building itself a strong and profitable niche serving the global asset management industry. Today’s results for the year to end Dec’ 09 reveal a 13% increase in turnover to £31.5m, adjusted EBITDA of £8.63m (2008: £6.75m) and PBT of £7.4m (a 471% improvement on last year). The trading analytics software company is confident that 2010 will see continued revenue and profit growth thanks to high levels of recurring revenue and new product launches.

  Total revenues increased despite a 32% reduction in consulting revenue (to £2.1m) as clients delayed expenditure in response to the global recession. On the flip side, levels of recurring revenue were up by 19% in the year to 93% of total revenue giving StatPro great revenue visibility going forwards.

  The 123% increase in free cash flow to £6.3m in 2009 also enabled StatPro to pay down a good proportion of its debt and it ended the year with net debt of £8.9m, compared to £14.6m the year before. The post balance sheet sale of source code to Johannesburg Stock Exchange brought net debt down further to £6.4m.

  The company continues to benefit from the move to SaaS (see StatPro anticipates new SaaS revenues and SaaS winning the argument for StatPro). As a proportion of analytics revenue, some 20% of its clients are on its new SaaS platform up from around 10% at the start of 2009. StatPro also boasts a large pipeline of existing clients wanting to make the move to SaaS and expects many more clients to convert this year.

  As we’ve said before, the move to selling considerably higher volumes at a considerably lower price point with its new SaaS products implies quite a change to the sales and marketing model. We’re pleased to see StatPro saying today that the focus will now be on organic sales growth with investment in its sales teams and an increase in its marketing profile, particularly on the web.

  Posted by

  Tola Sargeant

  at 08:55 - 0 comments

• Wednesday 10th March 2010

  SQS puts dampener on 2010 margins

  Although gross margins improved in H2 for Cologne-based and London-listed testing services player, SQS, CEO Rudolf van Megen warned of ‘lower than pre-recession gross margins’ in 2010 due to ‘ongoing economic uncertainties and pricing pressures’.

  Otherwise results were pretty much in line with January’s trading update (see SQS back on track), after its profit warning in May (see Testing services slowdown prompts SQS profit warning). Revenues for the year to 31^st Dec. ’09 fell 6% (as reported) to €134m, though FX accounted for about half the decline. Gross margins were clipped by 3 pts to 31.7%, with H2 recovering to 33.9%. EBIT margins almost halved to just 4.4% (FY08: 8.3%). SQS’ UK business (includes Ireland, South Africa and India) was particularly hard hit, with revenues down 18% (constant currency) to €33m. Revenues in home market Germany fell 7% to €64m.

  SQS is trying to do all the right things to fight the many battles in the marketplace. It has increased offshore headcount by 20% to 310 while holding total staff numbers flat at 1,168, bringing the offshore FTE ratio up from 22% to 27%. They also have a fledgling managed services (i.e. fixed price contract) business which today is only 3% of revenues but has the ambitious target of generating half of SQS’ revenues ‘over the medium term’.

  The big question, in all honesty, is how much faster can they move on both these fronts?

  Offshore testing is now the norm in the marketplace. It is dominated by the India-based SIs, led by Wipro, which generated just over $500m from its testing services in 2009. And Indian players can perform as much as 90% of testing activities offshore. They are also masters at fixed price contracts (typically around 40% of their total revenues), which demands a level of finesse in project estimating as well as execution which I would suspect few other players have yet achieved.

  SQS also talks of an ever expanding market opportunity for testing services, though I’d like to think that bandying around mega-billion dollar market estimates impresses only the ignorati. We do believe there is a viable and growing market for testing services (and see our SoftwareViews - Software Testing Trends research note), but this will be increasingly dominated by scale players. We’re not just talking about the Indians. Last month Capgemini finally got its testing act together, merging its core testing operations with those of its bodyshop brand, Sogeti, as we had urged them to do last May (see ‘Flat is the new good’ - Capgemini on India). This brings Cap’s combined testing headcount to 6,400, of which a third are based in India.

  There will be little wriggle-room for mid-sized generalist testing firms like SQS, the largest among its ‘independent’ peer group. They key as ever in commoditising markets will be either consolidation or intense specialisation. Frankly, there is such a rag-bag of players sitting underneath SQS in the testing marketplace that I’m not sure consolidation makes a whole heap of sense. So my sense is that it will come down to market focus. That, to my mind, is the real challenge for SQS.

  Posted by

  Anthony Miller

  at 08:47 - 0 comments

• Monday 8th March 2010

  K3 dresses up Dutch style with Pebblestone

  Not even a week after picking up its hosting partner, DigiMIS (see K3 reaches for the clouds), supply-chain ERP software player, K3 Business Technology announced that it has acquired the main bits of Netherlands-based ERP solution provider to the fashion industry, Pebblestone. K3 will pay up to €2m for the Microsoft Dynamics focused player, which turned over just under €4m last year with about €0.5m pre-tax profit. That sounds rather reasonable at first blush, especially given that future year tax deductions will bring the net price down to €1.5m.

  K3 also announced interim results based on its new June FY (to line up with Microsoft). Revenues for the six months to 31^st Dec. ’09 rose 15% to £23.5m while operating margins trimmed back just 40bps to 18.4%. K3 chairman Tom Milne sees tough market conditions ahead though was optimistic on new business pipelines.

  Posted by

  Anthony Miller

  at 09:00 - 0 comments

• Monday 8th March 2010

  SThree sees ‘meaningful signs of improvement’ ...

  ... with the caveat that “trading conditions still have some way to go before they can be regarded as normal”. That’s the picture for ‘ITSA-Plus’ (IT staff agency) recruitment firm, SThree for its first quarter (to 28 Feb. ’10) and is pretty much in line with commentary at its prelims last month (see SThree “pragmatic but positive” – Update). Like most companies across the IT sector that we speak too, CEO Russell Clements talks of an ‘encouraging’ pipeline, but we do urge you to consider this in the context of our comments in our just-released MarketViews SITS Forecasts report.  

  For the record, SThree is becoming even more international, with 60% of gross profit deriving outside of the UK (FY09: 55%), though this has more to do with the horrible conditions in the UK market (GP down 36%) compared to outside (GP down 19%). But as I have said before, SThree is a class act in the ITSA world and has traditionally withstood downturns better than most recruitment firms with its multi-brand focus on the mid-market. Long may it be thus.

  Posted by

  Anthony Miller

  at 07:58 - 0 comments

• Friday 5th March 2010

  Michael Page sees uncertain market recovery

  Rounding out the results from the recruitment majors, Michael Page closed “one of the most challenging years in the Group's 33 year history” with a view of stabilising markets but uncertainty over the scope and pace of recovery. So close to the billion pound mark in 2008, revenues to 31^st Dec. ’09 plummeted 32% (constant currency) to £717m, Gross margins were clipped back from 56.8% to 49.1% wiping nearly 12 points off the operating margin, down to 2.8%. But the company remained in net profit (£12.4m).

  Like peer Robert Walters (see Uncertain UK outlook at Robert Walters), Michael Page is only a small player in IT recruitment, which is lumped in with its ‘none of the above’ sector which generated 17% of gross profit, down nearly 40%. The UK region (32% of GP) saw revenues fall 25% but witnessed an also near-40% crash in GP as the mix shifted from permanent placement to contract, coupled with pricing pressure. The UK business started to stabilise in Q4 though GP still fell 3% sequentially.

  It’s really hard to take much heart from these (and peers’) results other than to surmise that the worst is over – for now.

  Posted by

  Anthony Miller

  at 07:41 - 0 comments

• Thursday 4th March 2010

  Uncertain UK outlook at Robert Walters

  A relatively minor player in the UK ITSA (IT staff agency) market, UK-based, but increasingly international, multi-discipline recruitment firm, Robert Walters, echoed the sentiments of peers about the state of the marketplace. In its FY results (to 31st Dec. ’09), CEO Robert Walters painted a gloomy picture for its UK activities, reporting limited visibility and an uncertain outlook.

  Group wide, revenues fell 11% (as reported) to £300m but net fee income/gross profit plummeted 31% (constant currency) to £104m, paring the gross margin back 640bps to 34.7%. This rippled through to the bottom line, with operating margins down to 0.5% (FY08: 5.5%) and a net profit of just £240k (FY08: £12.2m). All of Robert Walters’ markets showed a pre-tax loss except Asia Pacific, with UK the highest (-£830k). The one shining light in the murkiness of the UK business was (RPO) recruitment process outsourcing, where they have also won new clients as well as expanded activities in the install base.

  I do get a bit flippy-floppy over RPO. A few years ago I thought this was absolutely the way to go for UK ITSAs as margins in traditional recruitment were being pared to the bone and revenue visibility was myopic (still is, folks).  I thought that ‘outsourcing’ would help solve both problems. Well, it hasn’t necessarily proven thus, especially for players who run a pure-play RPO model, i.e. only do the recruitment management but don’t supply the bums on seats themselves. I’m meeting Harvey Nash CEO Albert Ellis for lunch today for a chat about this – and the general state of the recruitment market –and I will let you know of any interesting developments.

  Posted by

  Anthony Miller

  at 08:38 - 0 comments

• Wednesday 3rd March 2010

  Spring salvages Adecco’s ITSA business

  If it wasn’t for its acquisition of Spring Group late last year (see Spring is sprung!), Adecco would have seen its IT staffing revenues fall 18% in 2009 rather than the 5% (constant currency) decline it actually recorded. Adecco earned €1.1b from its various ITSA (IT staff agency) brands in 2009, around 7% of its total €14.8b revenues. UK ITSA revenues fell 23% yoy in Q4 ex-Spring.

  Group-wide, Adecco just managed to scrape an €8m (yes, eight) net profit in 2009 (FY08:€499m) on a miniscule 0.4% operating margin. Adecco’s UK business turned over €947m, down 23% ccy, but it lost €13m, almost all in Q4, partly due to the Spring acquisition.

  I will be speaking with Adecco UK CEO (and Spring ex-CEO) Peter Searle later this morning and will bring you more on UKHotViews Extra (Foundation Services clients only, folks!).

  Posted by

  Anthony Miller

  at 08:55 - 0 comments

• Tuesday 2nd March 2010

  Ordina hoping for a year more ordinary

  Netherlands-based ‘local hero’ midcap IT services player, Ordina, managed to scrape in with a tiny €180k net profit in 2009 even after taking a €1.1m hit on the disposal of its never-profitable BPO business (see Ordina finally gives up on BPO). Ordina lost over €80m net in 2008 due to the effect of loss-making operations since divested.

  But it’s Ordina’s continuing operations that highlight the dire state of the hugely T&M-skewed Benelux IT services market. Group revenues declined 14% (21% if you include BPO) to €542m, pretty much in line with regional results from European leaders Atos Origin and Capgemini, though not quite as bad as Logica (see European leaders – common themes). Operating margins narrowed by 50bps to 1.4%.

  Ordina CEO Ron Kasteel didn’t venture to predict revenues and profits this year: “The economy is showing some positive signs, although they do not give us cause to believe that market conditions in our industry will improve quickly and robustly. For the time being, we expect 2010 to be another challenging year. The start of 2010 confirms this. But 2010 will also be a year in which we plan to further shape our profile as a locally based specialist service provider.”

  It’s this latter point that really raises the question, how much room is there in the market for local heroes like Ordina? The big boys are moving downmarket and the Indians are pretty well entrenched in the Netherlands. Ordina has little or no offshore capability – and there was no mention of the progress with its ‘Trojan horse’ partnership with Cognizant at Rabo Bank.

  OK, nearly 45% of Ordina’s revenues derive from Public Sector/Healthcare clients, but the recent collapse of the Dutch coalition government throws the future into even more uncertainty. Surely, like we expect in the UK, the new Dutch government will indulge in heavy cost cutting, which leave Ordina even more exposed. Kasteel says Ordina “can step into the year 2010 with confidence”. Brave words for what are extraordinary times.

  Posted by

  Anthony Miller

  at 09:28 - 0 comments

• Tuesday 2nd March 2010

  InterQuest builds out the portfolio

  After a slightly more upbeat trading update earlier this year (see InterQuest hits a brighter note on IT recruitment) than you might expect from an ITSA (IT staff agency), InterQuest has reported results which pretty much reflect the state of the industry. Its FY revenues (to 31^st Dec. ’09) fell 8% to £97.4m with gross margins squeezed 180bps to 12.7%. Operating margins fell to 2.0% (FY08: 4.1%) as InterQuest admirably refuses to indulge in ‘exceptional’ cost accounting.

  I met up with founding chairman Gary Ashworth and CFO, Michael Joyce, after markets closed yesterday. Since I first met them nearly a year ago, they have launched no fewer than nine ITSA businesses under the InterQuest umbrella, some organically and others via its entrepreneurial VC/incubator arm, IQ Equity (see InterQuest makes first private equity play). InterQuest now plays a much broader field than plain IT contracting, with a portfolio that encompasses permanent recruitment and even RPO (recruitment process outsourcing). But almost all revenue is still UK based, unlike much larger peer (and role model) SThree.

  Ashworth told me they are not expecting to launch another 9 businesses this year – “need time to let the cake rise” – but they have recently launched two new ‘house’ brands. However, if the right opportunity came along ...  Now Ashcroft’s challenge is to gauge the pace of consultant (fee earner) recruitment to keep in step with – but not too far ahead of – what appears to be increasing contractor demand, especially in financial services and the private sector.

  Ashworth hopes to build the group into a £10m EBIT business. Last year was rather a step backwards to just under £2m, but hopefully this year will set them back on track again. I greatly admire what Ashworth and Joyce are doing, especially in terms of giving aspiring recruitment entrepreneurs the chance to set up their own business (OK, majority-owned by InterQuest, but that’s the price of venture capital) as they’d get ‘b-all’ from the traditional VC community.

  Posted by

  Anthony Miller

  at 08:21 - 0 comments

• Monday 1st March 2010

  European leaders – an 'exceptional' update

  Many thanks to James Dawson at Morgan Stanley research for delving deeper into the margin make-up of Atos Origin, Capgemini and Logica (see European leaders – common themes). Let me reproduce his comments (near) verbatim:

  “(I) think you're right with the reason (Ed: for the margin difference). One thing on the numbers though. It’s right to look at the "non adjusted" numbers as you can see there are huge differences. It might be a bit unfair to the Logica guys though as they have a very large (non cash) amortisation charge running through their P&L from the pre-Green days of acquisitions. Although the others did huge deals, they were either so difficult that most of the goodwill has been written off (Cap/E&Y) or there was so many adjustments that there was next to no goodwill generated (seem to remember Atos/ Sema actually ended up with negative goodwill...). Only other (smaller) difference between them is Capgemini exclude stock option costs.”

  James recalculated the post-exceptional EBIT margins excluding amortisation charges as follows: Atos 1.2%; Cap 4.1%; Logica 4.2%. Sins of the father etc etc. Having said that, my point that Capgemini spent less on restructuring relative to its revenues than Atos and Logica still holds. And all of which only serves to  remind me why I escaped from the ‘dark side’ of equities research to return to the simple life of an industry analyst! As James put it, “trying to keep up with the "exceptional charges" is a full time job for the dark side!!” Oh yes indeedy.

  Posted by

  Anthony Miller

  at 22:02 - 0 comments

• Monday 1st March 2010

  SDL grows thanks to major currency boost

  In line with its recent trading statement (SDL acquires Fredhopper, beats expectations) SDL has announced revenue up 8% to £172m, with PBT up 21% to £24m. However like-for-like (removing acquisitions and currency effects), the content management and language translation company saw revenue fall 8%. More cheerfully, revenue increased 10% sequentially in Q4 at constant currency (ccy). The City will be pleased because the company has announced it is to pay a dividend after strong cash generation – net cash was increased 48% in the year, to £46m.

  All divisions grew thanks to currency effects. Content Management Technologies was the star turn, growing 6% organically plus 13% due to acquisitions; at the headline level it grew 32% including currency. It now accounts for 19% of group revenue. Language Technology (17% of group revenue) declined 10% ccy, while Language Services declined 11% ccy. All divisions were profitable, contributing roughly in line with their revenue share.

  For us the best news is that content management is doing so well. This remains a hot area of the market, and SDL’s Tridion technology is acknowledged as a leading product. If SDL can truly leverage the synergy with the language translation technology – we’re not convinced it is yet doing so – this will give the USP needed to stand out in a crowded market. Further, as the economy improves we’d expect to see growth – independent of currency, which is unlikely to deliver such a major benefit this year – in the other divisions too. CEO Mark Lancaster says he’s confident in SDL’s growth prospects, and with its “strategy, vision and committed leadership team.”

  Posted by

  Philip Carnelley

  at 09:15 - 0 comments

• Monday 1st March 2010

  Xchanging feels impact of delays in decision making

  UK-based international BPO player Xchanging today reported organic revenue growth of 4.8% on a like-for-like currency basis – if we round it up, that’s at the lower end of the 5-10% organic growth predicted in its update to the market in December (see Xchanging restructures anticipating pent-up demand). To be fair, currency movements add a further 3.6% to the underlying growth rate and top line revenue growth for the 12 months to 31 Dec ’09 was 34.5% - taking total revenues to £750.4m thanks to the acquisition of Cambridge in 2009. Underlying operating profit (excluding exceptional items and amortisation) also grew by 35% to £63.9m, giving consistent EBIT margins of 8.5%.

  Xchanging has the UK market to thank for the majority of its organic growth. Revenue from the UK increased by 13.3% to £237.7m in FY09 driven by contract wins from its broking business, XBS, in the second half of 2008 (Cooper Gay) and early in 2009 (Aon Benfield). Xchanging’s UK-based hosting business also benefited from growth in demand from its insurance customers and the London Metal Exchange. In contrast, the volume of German business has declined and the US market has been weak.

  After the slowdown in economic activity in 2009, which saw customers deferring discretionary spending (particularly in IT services), Xchanging expects to benefit from higher levels of transactions and discretionary spend as the global economy recovers “over the next few years”. But, despite a well-stocked pipeline of deals worth more than £20m, delays in decision making mean it is likely to be the second half of 2010 at the earliest before we see any impact.

  As a result, Xchanging rightly took steps to reduce its onshore capacity in the UK and Germany in 2009 and has promised to further increase offshoring activities in 2010 to “enhance [its] competitive cost position”. Thanks to the Cambridge acquisition it now has critical mass in India. We expect the focus for 2010 to be on growing existing platforms, adding new ones and continuing its lean processing strategy.

  We’ll have more comment and analysis on UKHotViewExtra after the analyst briefing.

  Posted by

  Tola Sargeant

  at 09:09 - 0 comments

• Monday 1st March 2010

  ANT delivers on mid-year promise

  ANT, the AIM-listed provider of software for digital TV delivery to TV operators and device manufacturers, has followed up good mid-year growth figures (ANT expresses confidence in the future despite continued losses) with a similar performance in the second half: revenues up 26% to £4.7m. Customers include France Telecom, Chungwa and Cisco. Further, it kept costs flat (other than an increase due to currency changes), and in consequence, losses shrank from £1m last year to £600k this year and it was profitable in the second half.

  Looking forward, Ant sees great promise in the market for TV over the Web, which will lead to new TV-related services, such as those offered in the UK by BT with its hybrid BT Vision product, blending broadband with over-the-air broadcast (though BT Vision uses different technology). There is a move to establish an international standard, HbbTV, for hybrid TV broadcast/broadband TV in which Ant is heavily involved. Boxes based on Ant software for this standard are now on sale in Germany and other countries will follow. On a separate note – but, we think, encouraging for Ant – we read in the FT (see here) that Pace, the Yorkshire-based manufacturer of digital set top boxes, continues to grow and will announce it’s topped £1bn in worldwide sales. Ant, albeit much smaller, is also finding international success: 80% of revenues come from outside Europe.

  Posted by

  Philip Carnelley

  at 08:30 - 0 comments

• Friday 26th February 2010

  European leaders – common themes

  Now that the FY results of the top European SIs are in, let’s do a quick ‘compare and contrast’ between Atos Origin, Capgemini and Logica. There are a few common themes running through these results, most notably (a) the UK was the star performer; (b) Benelux barked; and (c) restructuring costs were a big feature of the landscape.

  It’s the latter point I wonder about. From the chart above you’ll see that Capgemini did less restructuring than peers (relative to revenues), and has the highest ‘real’ (i.e. IFRS) operating margin (4.0%). Is this because they did more restructuring last year than peers? Or are they ‘living in denial’? Actually, the answer seems to be ‘no’ on both points! In 2008, Capgemini spent just 1.2% of revenues on restructuring while Atos spent 1.8% and Logica 2.6%. And in 2008 Capgemini had the highest IFRS margin among, at 6.7%, compared with 1.8% at Atos and 2.4% at Logica. This rather suggests Capgemini is doing something a little smarter.

  Sorry to harp on again, but I think that offshoring may be what’s making the difference – or at least a goodly part of it. At the end of 2009, Atos had some 5,000 FTEs ‘offshore’ (mainly India), Logica not much different, whereas Capgemini had 28,000, of which some 24,000 are in Asia/Pac (mainly India). I know it won’t be the whole story, but I just cannot believe the correlation is coincidental. In the end, what we have to go by are the numbers. And that’s what the numbers are telling me.

  Posted by

  Anthony Miller

  at 17:25 - 0 comments

• Friday 26th February 2010

  Serco on steroids!

  Now, let’s begin by saying that, unlike Capita, support services group Serco is (a) international; (b) more public sector focused; and (c) also does ‘heavy lifting’ BPO. But perhaps this is why it grew faster, expanded margins, and won more deals than its UK, back-office oriented rival.

  Despite the tough market conditions, Serco really turned in a great performance. Organic growth over 9% (nearly double that at Capita) helped take revenues to a shade under £4b (£3.97b to be more precise), up 27% as reported. Operating margins tweaked up 30bps to 5.3%, whereas Capita’s were squeezed by 120bps to 11.2% (but obviously a better place to be). Serco continued to win 50% of new bids (and 90% of renewals); Capita’s major bid win rate fell to one in three. Serco’s order book is £17b, Capita’s bid pipeline (note difference) is £3.7b.

  OK, this is not quite ‘apples with apples’ but investors will certainly do the ‘compare and contrast’, as both players belong in the FTSE support services sector. Indeed, Serco’s shares have gained over 30% in the past 12 months vs a (hardly shabby) 13% for Capita.

  Our key area of interest in Serco’s business is that which overlaps with Capita in ‘IT-enabled’ BPO and IT services. At last look, this was worth some £300m p.a. (see Serco update). It’s going to be even trickier now to get a reading on this as Serco has merged this part of its operations (previously known as Serco Solutions, which housed the erstwhile ITNET business) into its £1.6b Civil Government division. Anyway, we are tuning in to the analyst briefing shortly and hope to meet up again with management in due course.

  Posted by

  Anthony Miller

  at 08:49 - 0 comments

• Thursday 25th February 2010

  Hays results reflect tough market

  “Stability” continues to be the watchword at multidisciplinary, IT recruitment firm, Hays. The company has announced its interim results for the six months to end December 2009. For the business as a whole, net fees (gross profit) continued to fall, down 35% on a like-for-like basis at constant currency.  The permanent placement business suffered the most with net fees down 45%.

  The figures in the UK are marginally worse with net fee income down 37% (and by 47% in the permanent placement business). The good news is that the company has seen “sequential stability in recent months” in demand in the UK and Continental Europe. But stability is as good as it gets.... It was the same word used to describe the sequential performance of the UK IT business (<10% of Hays’ UK business), and there are few signs of optimism going forward – with demand continuing to be “fragile”. Across the sectors, the public sector appears to be causing the business the most worries in the UK with trends “continuing to weaken” (39% of the region’s net fees are derived from UK Government, but just 10% of the IT business).

  The UK has taken numerous steps to reduce its cost base, including closing 18 offices and reducing consultant headcount by 17%. However, operating profit declined by a dramatic 86% from £45.6m to £6.2m reflecting “the lower level of average consultant profitability achievable in a demand constrained market” –CEO, Alistair Cox, states that the business has rapidly adjusted its cost base... and let’s look at the positive – £6.2m may be a smaller profit but it’s still a profit. The conversion rate (proportion of net fees converted into operating profit) dropped from 23.7% to 5.1%.

  In Germany it was quite a different story for the IT sector. With the business primarily focused on the IT contracting market, it was able to report a “modest sequential increase” in net fees in the second quarter of the period.

  As is to be expected, Cox puts a positive spin on the results pointing to “improved candidate and client confidence across most of the private sector markets”. He also believes the business is in a good position to capitalise on “the next phase of economic growth”. However, there’s no denying that things are tough for Hays and that ‘next phase’ can’t come quickly enough.

  Posted by

  Georgina O'Toole

  at 09:48 - 0 comments

• Thursday 25th February 2010

  Capita stays ‘Boring’ but slow start to 2010

  They’ve done it again. For the umpteenth successive year (where umpteen not only means >> 10 but also since their IPO in 1989 and probably before), UK BPO leader Capita has seen EPS rise, and therefore holds on to its coveted Holway Boring Award, the only IT services/BPO player to do so (Sage is the sole holder in software).

  But that’s almost where the good news ends as, by Capita’s standards, 2009 was a year of muted performance - and 2010 has not got off to a stellar start. Revenues last year grew ‘only’ 10% (to £2.69b), with adjusted margins creeping up 16bps to 13.3%. However, ‘true’ operating margins fell 1.2ppts to 11.2%.

  But what really caught my eye were orders so far this year – just £195m in aggregate contract value. This time last year that figure was £610m. Also, major contract wins and renewals were down by £240m last year, to £1b. However, Capita’s bid pipeline stands £600m higher yoy at £3.7b. Capita also enjoys about the highest revenue visibility in the industry, with no material contracts (i.e. >1% of turnover) due for renewal this year or next, just two in 2012, and none for the next two years. This is what ‘Boring’ is all about!

  Capita is still wrestling with potential claims from its trust management business, CFM (see Capita signals potential CFM claims) and has so far set aside £30m to cover current and future costs. Parts of this business are now up for disposal (doors, horses, bolted, etc etc).

  CEO Paul Pindar gave his usual “well positioned” outlook statement, which I’m sure quietly but confidently anticipates public sector spending cutbacks pushing more back-office outsourcing Capita’s way. There's much more for TechMarketView Foundation Service clients on UKHotViews Extra.

  Posted by

  Anthony Miller

  at 07:45 - 0 comments

• Wednesday 24th February 2010

  Civica benefits from balance in 2009

  Civica, the 3i-backed software and services company focused on the public sector, grew its business in FY09 thanks in part to a strong performance from its international business. Its results for the year to 30 Sep ’09 reveal top line turnover increased by 10% to £148m, gross profit was up just over 8% to £95.4m and EBIT rose by 6.1% to £22.3m. Organic revenue growth for the year was a respectable 8%.

  The group continues to increase the proportion of its revenue related to owned software (rather than resale) – this higher margin business was up another 14% in 2009 to £116.5m. It also had cash in the bank at the year end – some £18.2m.

  Civica’s balance of geographies, markets and business mix have helped it weather tougher times in the UK public sector market. When we spoke to CEO Simon Downing about the company’s performance earlier in the year he said business in Australia and New Zealand had been particularly strong. Other areas of growth include managed services (both internationally and in the UK) and of course the UK’s Building Schools for the Future (BSF) programme.

  Civica has taken a more cautious approach to BSF than many of its peers and this appears to be paying off. Its BSF deals now include Sheffield (which recently won an award for most effective BSF ICT partnership) and Luton and Barnsley, which together are expected to be worth more than £60m to Civica. We expect to see strong growth from Civica’s education business in 2010 on the back of these BSF deals which it insists have to be profitable within the first 12 months.

  In the year ahead we’ll also be watching to see what happens with Civica’s new health and social care division, built on the back of its acquisition of in4tek last year (see Civica acquires in4tek). Civica will be looking to combine its assets in areas like workflow and mobile working but also has a pragmatic eye on the longer term prize of closer integration between health and social care.

  Finally, we wouldn’t be surprised to see further acquisitions from Civica, which earlier this month acquired Australian local government specialist Management & Executive Software. According to Simon, 3i continues to be supportive and Civica will participate in market consolidation if prices are realistic.

  Posted by

  Tola Sargeant

  at 09:00 - 0 comments

• Wednesday 24th February 2010

  Autodesk – bit of a rebound is better than no bread

  Autodesk, the CAD software giant, reported its FY09 last night, cheering the markets a little after a pretty dreadful 2009. A global top 20 software provider (based on 2008 results), Autodesk’s revenue was down 26% at $1.7b, and licence sales down a spectacular 39%, or $600m, to $981m.

  The reason for cheer – shares rose almost 7% in after-hours trading – was that things were “less awful” in Q4, with revenue down ‘just’ 7% and up 9% sequentially; and drastic cost-cutting meant that the company was quite profitable in the fourth quarter, unlike the year prior. Eps was up 62% sequentially while operating margin reached 12%, after –27% in Q408 and 4% for the year. New licences grew 14% sequentially. However improvement was mainly in the Americas, and a bit less so in Asia. EMEA revenue grew 18% seq but fell 22% yoy, at constant currency. Europe’s definitely behind the US recovery curve in the manufacturing / design segments where Autodesk is so strong.

  Looking forward, the company is anticipating revenues of c$430m – flat compared to the prior year. Putting that in context, that’s down 28% compared to Q1 2008: very much in line with our market projections for a flattish 2010 followed by slow growth thereafter. Autodesk isn’t projecting results for the full year.

  Posted by

  Philip Carnelley

  at 08:30 - 0 comments

• Wednesday 24th February 2010

  Logica UK star shines

  The good news is that Logica came in on guidance for FY09, with revenues down 3% at constant currency to £3.7b (+3% as reported) and held its ‘adjusted’ margin pretty much stable at 7.4% (FY08: 7.5%). However, the ‘true’ operating margin was 1.8% (FY08: 2.4%) as Logica shelled out more on restructuring than originally anticipated.

  UK was the star turn, the only one of Logica’s regions to grow, but it was unable to keep up the pace with Capgemini and Atos. Logica UK grew revenues 6% to £750m, with Cap UK and Atos UK growing 7.5% and 7.4% respectively (see Capgemini UK does it again). Pro forma UK margins expanded 70bps to 8.5%, the highest in the group, closing in on Cap UK (8.9%) and Atos UK (9.1%).

  Like peers, Logica found Benelux region most troublesome, with revenues down 18% ccy to £574m, and pro forma margins down 2.7ppts to 4.2%, the lowest in the group. Outsourcing increased across the group to 37% of total revenues (FY08: 32%), but Logica missed its Blended Delivery target, with flat offshore/nearshore headcount.

  CEO Andy Green hopes to hold revenues and margins flat (ccy) this year, with cost reductions offsetting pricing pressure, but with no further restructuring charges. That has all sorts of implications for workload balancing given that the sorts of pricing pressure we’re hearing about in the market is around 20% (and in some cases deeper).

  As ever with Logica’s results, ‘the devil is in the detail’, so I’m off to the analyst briefing now and then will be meeting Logica UK CEO, Craig Boundy. There’s more for TechMarketView Foundation Service clients on UKHotViews Extra.

  Posted by

  Anthony Miller

  at 07:51 - 0 comments

• Friday 19th February 2010

  Perot lift Dell’s revenues but not margins

  In the first quarter that the acquisition of Perot Systems has been fully consolidated, services climbed from 9% to 13% of Dell’s $14.9b revenues in Q409 (to 29 Jan. '10). Perot added about $600m to the tally, much in line with its sales pre-Dell. However, Dell CFO Brian Gladden conceded that Perot add “basically zero” to gross margins, which by my reckoning was not good news for Perot! In the final couple of quarters before it was acquired by Dell, Perot was running a near-20% gross margin and around 7-8% operating margin. Dell reported 16.6% gross margin in Q4, down 60bps yoy and down 70bps seq, with operating margins flat yoy at 3.4% but down 110bps seq.

  Gladden was optimistic about its revamped services business, identifying “200 growth synergy opportunities ... from very small server monitoring engagements to data centre outsourcing engagements”. The challenge, as he so rightly pointed out, “comes from narrowing our focus to a targeted few opportunities”. He claims “significant” cross-selling wins in pure Dell and pure Perot accounts but didn’t say where and how big.

  On its core business, Dell seemed to do OK-ish in most areas except consumer, where margins essentially vanished due to “aggressive market pricing dynamics” and component cost pressures. Nevertheless, Dell remains “committed” to its consumer business, which recorded $3.5b in Q4 revenues (23% of total), up 25% seq and 10% yoy. This end of the market is certainly not going to get any easier as the pace of new mobile internet device (MID) launches accelerates.

  Chairman and CEO Michael Dell presaged more M&A – which his balance sheet is more than capable of sustaining. The Perot deal ‘only’ took $4b cash, still leaving nearly $12b in the kitty. It seems the more recent KACE systems management appliance acquisition points the way to a greater desire to manage the kit it sells, particularly in the enterprise space. But I still don’t think Dell and Perot is a marriage made in heaven, and once it has exhausted the ‘low-hanging’ fruit on the cross-selling tree, the really hard graft will begin.

  Posted by

  Anthony Miller

  at 08:52 - 0 comments

• Thursday 18th February 2010

  Capgemini UK does it again

  I’d like to have been able to say ‘All hail Mr/Ms Capgemini UK’, but unlike Atos Origin (see Atos UK does it again) Capgemini doesn’t appear to have a UK CEO 'within the meaning of the Act'. So it’ll have to be congrats all round to the Capgemini UK team for topping the pops in 2009, being the only major country market to grow (by 7.5% like-for-like, to €1.9b) and with the highest operating margins (8.9%). Capgemini UK grew just a tad faster than Atos Origin UK (7.4%), but with a shade lower margin (9.1%). It seems Capgemini UK must have had a significantly weaker H2, as growth in the first half was 12.7% with 8.1% margin (see Atos and Capgemini UK update) - a little investigation for us to do there, then.

  But I’d have to say I was disappointed in Cap’s overall performance, with revenues down 5.5% like-for-like (worse than Atos) to €8.37b and margins down 140bps to 7.1% (better than Atos). What’s more, management are guiding or a further 2-4% revenue decline this year and for operating margins to be squeezed again, to between 6-6.5%. I must admit to feeling a bit of a chump here as I regularly castigate Atos (and indeed Logica) for being ‘offshore-lite’ and hence carrying greater margin risk, but here’s Capgemini with over 30% of its 90,500 workforce in low-cost countries (mainly India) who, on the face of it, are not apparently pulling their weight!

  By the way, in our CompanyViews SITS 2009 Preliminary Rankings report, we had allowed for Capgemini UK to continue its stellar growth in H2, which put them in 4^th spot in the UK SITS rankings overall. With 'only' 7.5% growth they slip provisionally down to 5^th place. However, there are many more results yet to come in and we will publish the final rankings mid-year.

  More on all of this later.

  Posted by

  Anthony Miller

  at 07:40 - 0 comments

• Wednesday 17th February 2010

  HP Services slip back

  Despite management’s firm belief there is more room for expansion in HP Services margins (see HP resolute - margins no ‘miracle’), Q1 10 margins slipped back 40bps to 15.8% sequentially, ending a four quarter uphill run. Services revenues declined 1% yoy to $8.7b as reported, but this was a 3% sequential decline. In fact, Services appeared to be the only part of HP’s portfolio that went backwards yoy.

  Application Services seemed to be the main drag, down 8% yoy, vs a 2% yoy decline in Technology Services. BPO revenues declined 3% but only represent 8% of HP’s services mix. IT Outsourcing revenues grew 2% to $3.9b.

  Software revenues were flat yoy at $878m but 9% lower seq. Software margins were 3pts better yoy at 19.0% but over 5pts light seq.

  Total revenues grew 8% yoy as reported (5% at constant currency) to $31.2b, ahead of last quarter’s guidance. European revenues declined 1% yoy at constant currency. Management raised FY revenue and EPS guidance.

  More later when we have picked the flesh off the bones!

  Posted by

  Anthony Miller

  at 22:54 - 0 comments

• Wednesday 17th February 2010

  Atos UK does it again

  All hail Keith Wilman! Yet again, the Atos Origin UK CEO has led his business unit to pole position in the Atos rankings in 2009, with 7.4% organic revenue growth to €902m, and a 180bps margin uplift to 9.1% - ahead of every other country market. Fastest growth was in Managed Services, up 22%, but even the UK Medical BPO revenues grew 3.5% to €153m. Atos UK had won a slew of contracts during the year (best to search for ‘Atos’ in the UKHotViews archive as there were quite a few), including a previously unannounced top-up to its Nov. ’07 £20m infrastructure services framework deal with Capita Life & Pensions. And the deals don’t stop coming – today Atos announced a £50m/10-year extension to its contract with UK food services firm Brakes.

  The picture across the rest of Atos is not quite as bright. The good news is that the Group came in on target, boosting operating margins by 84bps to 5.7%, towards the top end of the 50-100bps range it guided for this time last year (see Atos tops up TOP). Also as expected, revenues declined, by 3.7% organic, to €5.13b. Worst performing market was Benelux region (-13.6% organic) but it remains Atos’ 2^nd largest market at €997m, nearly 20% of the Group. France did ‘OK’, down 3.0% to €1.13b. Not surprisingly, Consulting was a complete dog, with revenues down nearly 24% (€248m) and margins massacred to 1.3%. Just as well it’s now only 5% of the Group! However, Consulting did pick up in Q4 with 14% seq. growth. Systems Integration revenues declined faster (yoy) in Q4, down 12.4% organic, compared to -10.7% in the first 9 months of the year, though up 12% seq. T&M was the problem, and I’m guessing that ties in with the poor showing in Benelux – not a good sign for other major European players like Capgemini (reporting tomorrow) and Logica (reporting next week), both substantial players in that region.

  On the offshore front, Atos totally undershot its target of raising offshore/nearshore headcount from 4,500 to 5,500 FTEs, finishing the year with 5,000 (mostly in India) though they have been recruiting ‘freshers’ (undergrads) from the Indian engineering colleges. I don’t know, don’t they get it yet? Now the cost cutting is mostly done (I assume), how else are they going to get the 50-100bps margin expansion they are promising this year? Prices aren’t going up, you can be sure of that!

  Anyway, I’ll be having my usual chat with Keith Wilman later and will of course bring you all the news on Cap and Logica as it happens.

  Posted by

  Anthony Miller

  at 08:36 - 0 comments

• Tuesday 16th February 2010

  iSOFT hit by strong Aussie dollar

  Australian-headquartered iSOFT Group, a key supplier to the UK’s National Programme for IT in the NHS (NPfIT), has been hit by the strength of the Australian dollar and a weakness in the Australia, Middle East, Africa and Asia healthcare IT markets in the first half of 2010. Revenue fell 13% to A$239m (£127m) – a 1% drop at constant currency – and EBITDA was down almost 40% (-27% ccy) on H109 at A$40.8m (£21.7m).

  NPfIT continues to have a strong influence on iSOFT’s performance accounting for around 20% of Group revenue in the first half. Both revenue and EBITDA were affected by a change in the way NPfIT milestone payments were phased between the first half of 2009 and 2010 to the tune of A$11m.

  iSOFT confirmed that the new two-year agreement it negotiated with prime contractor CSC for its NPfIT work in December last year will “see some drop in revenue” although it provides greater revenue visibility going forward. The management is hopeful that the drop in revenue will be offset by more profitable opportunities to sell its software to CSC and directly to NHS Trusts, but this is far from a foregone conclusion.

  There are rumours that CSC - currently in discussions with NHS Connecting for Health in the government’s bid to find savings of £600m from NPfIT - may not now deploy iSOFT’s software (Lorenzo) past Release 2 (see for example Lorenzo ‘will stop at Release 2’ on eHealthInsider). iSOFT had been expecting to deliver Release 3 of Lorenzo to CSC in 2010. If confirmed, this could have significant implications for the Australian firm as could a change in UK government later this year, since the Conservatives would make even more sweeping changes to the National Programme.

  The good news, from a UK perspective, is that iSOFT has seen 11% growth from its UK & Ireland business (excluding NPfIT) and the non-NPfIT backlog climbed 48% compared with a year earlier - signs that NHS Trusts are increasingly procuring systems locally outside the centrally funded programme and are still considering iSOFT when they do.

  The markets were understandably disappointed with iSOFT’s results and its shares closed down 11.3% in Australia.

  Posted by

  Tola Sargeant

  at 09:22 - 0 comments

• Monday 15th February 2010

  Steria UK recovers ground in Q4

  After a disappointing Q3 (see Steria UK revenues drop 15% in Q3), the miscreant slipped contracts finally got going, pushing Steria’s UK revenues up almost 5% (constant currency) in Q4 to €177m. But this wasn’t enough to keep the business level at the top line over the year, with FY revenues finishing nearly 4% down at €639m. This was pretty much in line with group revenues, which fell 3% (constant currency) to €1.63b. UK book-to-bill at December was ‘similar’ to the prior year.

  Steria’s domestic market suffered most, with revenues in France down over 5% to €507m. And once again bucking the industry trend, Steria’s Managed Services and BPO activities declined by over 5% to €587m whereas Consulting & SI revenues ‘only’ shrunk by 2% and now represent 64% of group revenues.

  Little on profitability other than to say at Group level, adjusted operating margins will be higher than management previously guided. Given that a goodly chunk of Steria's profit comes from the UK, it suggests UK margins should still look pretty respectable, though I doubt they'll reach the stellar 11% level of 2008. More when the full results are out mid-March.

  Posted by

  Anthony Miller

  at 18:17 - 0 comments

• Monday 15th February 2010

  Sopra UK holds steady in H2

  After a difficult first-half (see Steria, Sopra losing UK share), Sopra’s UK business kept a grip on the top line and improved the bottom line. UK revenues for the year to 31^st Dec. ’09 declined 14% - the same as in H1 – but operating margins increased to 6.9% (2008: 4.7%, H109: 5.1%). This probably puts the UK business at somewhere around €60m in revenues.

  Overall, it was a very challenging year for Sopra Group, with revenues down 4.5% at constant currency to €1,094m (-3.1% as reported) and operating margins down 3ppts to 5.8%. Sopra’s core SI business in France (64% of the Group) held revenues essentially flat at €705m, with margins off 60bps to 8.3%. As ever, best margins came from Sopra’s enterprise software arm, Axway, though even so still 160bps light at 10.2%. Axway drives about 17% of Sopra’s revenues.

  Management expects “positive organic growth” and margin improvement in 2010. There’s more detail to come from the company later. Much larger peers Steria, Atos Origin and Capgemini report over the next few days, but I am pretty sure that they will have gained share in the UK against Sopra.

  Posted by

  Anthony Miller

  at 18:01 - 0 comments

• Monday 15th February 2010

  Fidessa gaining market share

  Fidessa, the UK’s fourth largest software company, has reported strong growth in FY09 and declared a special dividend of 40p to return some cash to shareholders.

  Revenue in the year to 31^st Dec ’09 was £238.5m – up 26% year on year, or 17% at constant currency, slower than H1 as expected (see Fidessa slows). Adjusted operating profit (after the effect of Touchpaper gains, acquisition intangibles amortisation, the patent dispute settlement, the Lehman receivable write off and a notional interest charge) was £36m, up 34% year on year or 23% at constant currency. Pre-tax profits were down 14% to £31m reflecting an exceptional gain from the Touchpaper disposal in 2008.

  Fidessa is still taking market share despite difficult market conditions but the overall rate of growth is set to slow again in 2010 thanks to higher levels of consolidation and business closures within its customer base in 2009.

  
  

  Posted by

  Tola Sargeant

  at 08:38 - 0 comments

• Thursday 11th February 2010

  Patni reverses European decline

  After five sequential quarters of European revenue decline, the smallest of the Indian majors, Patni, appears to have turned the corner in Q4, at least as reported. In the quarter to 31^st Dec. ’09, Patni’s European revenues grew 6% seq to $23.8m and now represent 14% of the total, up from 13.5% the prior quarter. This will come as encouraging news to new European head, Derek Kemp (see Changing of the EMEA guard at Patni), who will be keen to see this as the first step in a continuing trend.

  Overall, Patni did a creditable job in Q4, seeing revenues grow 2% seq (as reported) to $170m, a little above guidance. But the real progress was in the EBIT margin, which expanded over 3ppts seq to 19.6%, and way over double the 8.4% in Q408. I’ll be meeting Derek Kemp in the next couple of weeks and will bring you more then.

  Posted by

  Anthony Miller

  at 09:38 - 0 comments

• Thursday 11th February 2010

  Lacklustre CSC losing share

  Though it has put just a little more ‘oomph’ into its EBIT margins – but still nothing to shout about at 8.3% - CSC lost share again in its most recent quarter (to 1^st Jan. ’10). Q3 revenues were flat yoy as reported, at $3.95b, but this was a 2% seq decline across the company, though its Commercial (private sector) businesses registered a 3% seq. revenue increase. Most of CSC’s major peers reported 6% seq revenue increases. Revenues in Business Solutions & Services (basically consulting & SI) were down 8.4% yoy in constant currency, and 5.3% down (yoy ccy) in Managed Services (outsourcing). New orders were hugely skewed towards outsourcing, with over 75% of the $6.8b in new contracts coming from Managed Services.

  In which respect, CSC UK must look like it belongs to a different company given its buoyant H1 performance (see Double ‘Double-digit’ CSC UK). We’ll aim to get an update from UK management on Q3 to make sure they haven’t taken their foot off the accelerator!

  Posted by

  Anthony Miller

  at 08:36 - 0 comments

• Thursday 11th February 2010

  BT Q3: Global Services drives EBITDA improvement

  BT has announced financial results for the three months to 31^st December 2009. At the top level revenues were down 4% to £5,198m, while adjusted EBITDA (before specific items, leaver costs and contract and financial review charges of £336m in Q308) was up 11%.

  The EBITDA improvement was largely down to continued sequential improvement at BT Global Services. The business reported £123m EBITDA compared to just £7m in the comparative quarter in 2008, having achieved an 11% decrease in underlying operating profits.

  BT Global Services’ revenue was down 3% to £2,118m. However, excluding favourable foreign exchange movements, the decrease was 5%. No great surprises here as the same trends have contributed to the decline as in previous quarters... mobile termination rate reductions, lower wholesale call volumes in Continental Europe, declines in UK call and line revenues and “economic conditions”.

  Posted by

  Georgina O'Toole

  at 08:09 - 0 comments

• Wednesday 10th February 2010

  Cerner’s international business disappoints

  US healthcare company Cerner, a key subcontractor to BT on its National Programme for IT in the NHS (NPfIT) contracts, is disappointed with the performance of its global business in 2009.

  The detail of Cerner’s Q4 results, released late yesterday, reveals that its international revenue was just $65m in Q409, down 48% on an unadjusted basis (or down 31% after adjusting for a $29m one-time ‘catch up’ in revenue in 2008 related to its London contract with BT). Cerner claims it also had unusually large global hardware sales in Q408 and that normalising these as well suggests a decline of 10% in its international business.

  Even a 10% decline is disappointing from Cerner though and implies the difficult global economy is having a significant impact on investment in healthcare IT. Nevertheless, the management remains optimistic that the global business will rebound and resume its contribution to Cerner’s overall growth. As for its prospects in the UK, we believe it is likely to face increasingly stiff competition in the battle for NHS electronic patient record contracts. Mid-sized rivals with a footprint in the UK and less of an association with the troubled NPfIT – the likes of System C Healthcare, InterSystems and Sweden’s Cambio Healthcare Systems – are well placed to win business both in the South of England and the NHS more broadly.

  Overall, Cerner’s revenue was flat in FY09 at $1.67b, or up 3% if you adjust for the UK catch-up payment and an extra week in the fiscal year. Operating margins were 18.5% in 2009 and breached the company’s 20% target in Q4 (at 21%) giving Cerner confidence that it will achieve 20% margins in the coming year. Bookings also reached an all time high in 2009 at $1.83b, up 19% on 2008, as the US stimulus package begins to drive demand.

  The analyst conference call revealed another interesting snippet for followers of NPfIT’s trials and tribulations: Cerner has reclassified a receivable due from Fujitsu following the termination of its contract with NPfIT in the South of England to ‘other long term asset’ because it believes a resolution of the dispute between Fujitsu and the NHS is “unlikely to occur in the next 12 months”. Cerner still expects to fully collect the sum but the timing, like much in the UK healthcare market at the moment, is uncertain.

  Posted by

  Tola Sargeant

  at 10:52 - 0 comments

• Wednesday 10th February 2010

  Morse still looks to BAS recovery

  Repeating his comments earlier in the year (see Morse’s stock marches onwards and upwards), Morse CEO Mike Phillips still believes their beleaguered Business Applications Services (BAS) division “has potential to provide a significantly better return”. And in theory at least, it probably has. For the most part, BAS is the ‘old’ Diagonal business which, as veteran readers will know, held the dubious distinction of being one of the few (only?) SAP services houses to lose money in the boom, a pretty dreadful testament to the ‘achievements’ of previous management. Even though SAP itself has its own problems (see Apotheker leaves SAP), the market for SAP services has remained remarkably robust, mainly due to massive consolidation and harmonisation of SAP systems as customers strive to cut costs. But it’s the India-based SIs that have been getting more than their fair share of that business, and this will remain the challenge for Morse if it is to see any substantial recovery in the BAS division, which at the halfway stage finds its (adjusted) margins at just 1.3% (1H09: 4.4%).

  Notwithstanding all of that, management continues its remarkable job of stabilising the rest of the Morse business, as recognised by the market with its shares over 40p, about six times higher than this time last year. I’ll be speaking with management and will put more on UKHotViews Extra for TechMarketView Foundation Service clients afterwards.

  Posted by

  Anthony Miller

  at 07:56 - 0 comments

• Wednesday 10th February 2010

  Telecity and the joys of sweating the assets

  You can argue that hosting and co-location are commoditised services, but if so it’s hard to argue with 23% operating margins. That’s where data centre specialists Telecity ended the year – nearly 10ppts higher than in 2008. There was a great story on the top line too, with revenues up 23% at constant currency (27% as reported) to £169m. The key, of course, is sweating the assets, which Telecity seemed to do admirably last year as almost 65% of incremental revenues flowed through to EBITDA. I’m off to the briefing shortly and will put more on UKHotViews Extra for TechMarketView Foundation Service clients later.

  Posted by

  Anthony Miller

  at 07:32 - 0 comments

• Tuesday 9th February 2010

  Cognizant puts the '20' in 2010

  There’s nothing like hanging it out for all to see, and Cognizant has done just that with its 2010 guidance. The number is 20% - that’s how fast management expects revenues to grow this year – at a minimum. If achieved – and Cognizant doesn’t often miss a beat (so to speak) – that would put them an inch short of $4b turnover – and I really can’t see them wanting to finish an inch short. This would mean huge share gains for Cognizant as we expect the worldwide market for software and IT services will barely grow this year.

  Cognizant’s Q4 was pretty much like major peers’, with 6% sequential growth (as reported) to $903m. However, EBIT margins eased 1ppt seq and 2ppt yoy to 18.5%, unlike Infosys and TCS, which both saw margins improve. Nonetheless, margins were in the usual range. At first blush the ‘problem’ appears to be with gross margins, down 2ppts seq and yoy to 42.3%, the lowest I have seen them for some years. Don’t know why yet – but I will find out.

  But it’s the FY10 revenue guidance that the market will take heart from – as it appears to have done, marking Cognizant’s stock up 5% as I write – along with most of the other Indian players. However, the +14% EPS guidance surely signals caution on margins but obviously this doesn’t seem to have phased investors.

  There’ll be more for TechMarketView Foundation service clients once I have digested the numbers.

  Posted by

  Anthony Miller

  at 19:04 - 0 comments

• Tuesday 9th February 2010

  Alphameric on good turf

  Veteran readers of Ye Olde Holway Report will know that Alphameric has had a rich and colourful history in the UK software and IT services (SITS) sector. With its roots in EPOS systems (and a lot of other things besides) today Alphameric is arguably more a content provider than SITS supplier, with some two-thirds of its £40m revenues deriving from AMRAC, the TurfTV racecourse broadcast 50/50 joint venture.

  At first blush Alphameric’s results look a darn sight better than last year, especially as they are now profitable whereas in 2008 they weren’t. Also, a long-running legal dispute was resolved in its favour just at the end of last year. Meanwhile, even longer-running (since 1995) CEO Alan Morecombe is stepping down at the end of this month, with multi-faceted chairman, Peter Bertram, taking on executive control.

  Again, another player that I am not close to, but Alphameric looks a much more focused company than days of yore. But it’s the move into content that’s the thing to watch (literally!) showing how the boundaries are blurring on what should be considered part of the SITS universe. Maybe we need yet another acronym: CaaS – Content as a Service?

  Posted by

  Anthony Miller

  at 08:52 - 0 comments

• Tuesday 9th February 2010

  Patsystems battles onwards and upwards

  On the face of it, 2009 was a pretty good year for AIM-listed derivatives-trading software company Patsystems despite its products being in the heart of the economic maelstrom. As reported, revenues for the year to 31st Dec. '09 rose 13% to £22.1m though I can’t seem to spot any figures for constant currency growth, given that 65% of Patsystems’ revenues derive from beyond Europe.

  The margin story, also on the face of it, looks impressive but again the devil may be in the detail. Patsystems records almost negligible cost of sales (3%) – a not unusual accounting portrayal for pure-play software firms, but I understand they supply trading screens as well as software to clients, so the cost of hardware appears to be accounted for elsewhere (or perhaps passed through to the client). Operating margins doubled to 19.7% and again there was no detailed break-out to indicate where this dramatic improvement came from.

  I openly admit that I am not close to this company and it may well be that the inner financial workings are well understood by the cognoscenti. Having said that, it would have been nice to see a bit more transparency for us 'outsiders'. Nonetheless, assuming everything is tickety-boo beneath the ‘as reported’ stuff, then Patsystems’ well-balanced geographical spread and 82% recurring revenue base (albeit 87% in 2008) are the things we like to see – especially in a ‘Little British Battler’.

  Posted by

  Anthony Miller

  at 08:12 - 0 comments

• Monday 8th February 2010

  Netsuite grows but not so fast

  Netsuite, the provider of ERP software-as-a-service to the mid-market has reported its FY09. It’s not the biggest SaaS player, but we think it has the most comprehensive functionality, covering financials, ERP, CRM and e-commerce. So, not so big as Salesforce but still something of a poster-child for the industry. One of the oldest SaaS players (and co-founded by Larry Ellison) Netsuite has set the bar for other companies who want to offer international business software as a service, such as SAP with its Business By Design, and has garnered around 6,500 customers to date, 2000 of them since its IPO in 2007.

  Despite its heritage, we'd say the company still has a ways to go to match market share with its undoubted mindshare. In FY09, the company grew 9% to $167m, while GAAP operating losses widened to $23m from an $18m loss in 2008. International revenues account for about 20% of the total. The exponential growth of its early years has most definitely trailed off. We spoke with CEO Zach Nelson on a recent visit to London and he is a good ambassador for the company and its products, which continue to garner customers (295 added in the last quarter). But there can be no doubt that the competition will intensify massively over the next couple of years. Netsuite needs to make the most of its market lead while it still has one.

  Posted by

  Philip Carnelley

  at 15:30 - 0 comments

• Monday 8th February 2010

  Kofax returns to a growth path

  We reported 6 months ago that Kofax, the document systems provider, had a disappointing FY09 with falling revenues in all regions once currency effects were removed. Nevertheless we saw CEO Reynolds Bish’s structural changes as positive and the acquisition of 170 Systems as a good move.

  Today’s interim results indicate that things are now moving in the right direction. Revenues were up 9% to $168m, and more important as a future indicator, software revenues grew 17% “as reported”, (including the 170 Systems contribution), with new license sales up 7% on an organic, constant currency basis. Software services were up 11%. The hardware business shrank 3% (organic, ccy) in line with falling hardware costs everywhere. Hardware (including related services) is now down to 40% of Kofax’s business.

  Looking forward, the company expects more of the same: mid-single digit growth (organically) in its software business for the year as a whole and flat or single-digit decline in hardware – steady as she goes.

  Posted by

  Philip Carnelley

  at 09:00 - 0 comments

• Friday 5th February 2010

  SuccessFactors buys Inform to cap a good year

  At yesterday’s excellent Regent-Intellect conference, one of the most oft-recurring themes was, unsurprisingly, the Cloud. So it’s instructive that one of the more visible Cloud pure-plays, SuccessFactors, reported its FY09 yesterday.

  SuccessFactors offers HR software-as-a-service. It is not the biggest SaaS company, but due to the nature of its deployments it probably has the most users: it claims over 5m users from its 3,000 customers (Salesforce claims 2m from 69,000 customers). One of its more recent deals is with Siemens, a whopping 420,000-seat licence (considerably larger than IBM's LotusLive deal with Panasonic - see Cloud helps IBM Lotus capture Panasonic).

  The overall message from the results are that it’s doing well saleswise but profits have yet to appear. Revenues for the year were up 37% to $153m. In the Q4, revenues rose 28% but bookings rose 34% (y-on-y) and 26% sequentially, so the growth continues. Its sales strategy and 'business execution' message is undoubtedly working well, backed by the fashionable nature of its delivery model. Operating losses shrank from $62m in '08 to $12m in '09. Excluding ‘stock-based compensation’ the company made a small profit at the operating level in Q4.

  The company also announced it is to acquire an Australian software company, Inform, which offers workforce planning and analytics, also with a SaaS model, for approximately $40m in cash and stock.

  For the coming year SuccessFactors is forecasting a more modest 17% growth and similar margins – including the effects of Inform (which will not close till Q3).

  It is a consequence of the revenue model for SaaS that a fast growing company is unlikely to see much profit: it needs the ongoing rentals to outweigh the cost of (new) sale. Even Salesforce.com has only reached 9% OP margin – low for a software company. The interesting question is how long investors will support higher multiples on companies with more distant profits than traditional software companies. In SuccessFactor's case, the company’s stock grew strongly and steadily last year: up 200%, vs the Nasdaq's +44%, but after peaking in early January it has fallen more sharply and consistently than the Nasdaq (and down 5% in after-hours trading last night). It's a sentiment thing: Salesforce's stock has followed a similar, though less extreme pattern. SuccessFactor's market cap is still over $1bn, however – a PSR of around 7x.

  Posted by

  Philip Carnelley

  at 08:45 - 0 comments

• Friday 5th February 2010

  Hardware storms ahead at Unisys

  It is as if Unisys operates in a parallel universe! They must be one of the only players seeing hardware sales and margins surge forwards, as they did again in Q4 (to 31^st Dec. ’09).

  Whereas services revenues declined 14% yoy (constant currency) to $1.02b, product revenues grew 11% yoy ccy, albeit just to $192m, about 16% of the total. Services gross margins declined 150bps quarter-on quarter to 16.9% though this was 130bps higher yoy. Services operating margins fell 130bps qoq to 6.4% but this was double that a year prior. The services order backlog crept up $100m qoq to $6.5b, which was $400m higher than at Dec. ’08.

  In stark contrast, Unisys’ product gross margins are now 61% with 31.5% operating margins, on the back of “strong sales of higher margin ClearPath enterprise servers”. Even IBM’s product gross margins are ‘only’ 43%. Either their boxes are something special or their salesmen are!

  Anyway, this was the third consecutive quarter of net profit for Unisys, though CEO Ed Coleman was clear that “the turnaround is not complete by any measure”. Indeed there’s clearly much more work to be done on the core services side of the business.

  Posted by

  Anthony Miller

  at 08:30 - 0 comments

• Thursday 4th February 2010

  Software AG benefits from IDS Scheer takeover

  Software AG (SAG) this morning released its FY09 results. Separately, it announced that it intends to fully integrate IDS Scheer (it currently owns 91% of the stock) during the coming year, purchasing the outstanding shares.

  FY09 was OK for SAG, made much better by the IDS Scheer takeover. IDS has increased SAG’s revenues some 40%, while staff numbers increased 71% to 6000. For the year, revenue was up 18% to €847m, with EBIT up 21% giving EBIT margin of 26%. The inclusion of IDS Scheer has not hit margins: EBIT in Q4 was up, from 25.8% a year ago to 27.4%. But the company is looking for savings from the integration in the coming year. Excluding the contribution from IDS, revenues for the year were flat with product sales up 2% (though new licences were down 8%) and services down 5%.

  The webMethods middleware business was up 3% but recovered strongly in Q4 with licence growth of 21% year on year. Service revenues soared 48%, to €262m, due to the contribution from IDS.

  Looking forward, Software AG is forecasting total revenue growth of 25 to 30% in 2010, with product revenue growth of 12 –15%. Including a full year of IDS Scheer’s revenues will push it comfortably over the €1bn sales mark.

  SAG’s position in the UK is not well recognised. It is particularly strong in the public sector – about half its UK sales – and counts as one of the UK’s top 20 software providers. The acquisition of webMethods a couple of years ago had a transformative effect on its market position and prospects, and integration of IDS Scheer’s BPM capability will have a further big effect: we think BPM is one of the big software trends of 2010. We will be publishing a more in-depth analysis of Software AG and its UK business in the next couple of weeks.

  Posted by

  Philip Carnelley

  at 08:00 - 0 comments

• Thursday 4th February 2010

  Bye Bye Formjet, Hello Third Quad Capital

  AIM-listed Formjet, the software distributor, released its results for 2009 and they tell of a turbulent year. Following the appointment of a new CEO, Andrew Monk, in July, the company sold its subsidiary Panda Software (UK), a software distributor, reducing its ongoing revenues from £3.6m in ’08 to just £868k. It also wrote off a loan to its Benelux operation. The sale should raise around £1.2m and the company intends to look for acquisition targets to build a new business. One (unnamed) target was identified but issues arose and it was abandoned. In view of its new approach, the company is planning to change its name, to Third Quad Capital Plc. It intends to continue with its AIM listing though it acknowledges it is too small presently to justify the cost. It does have some ongoing business with growth prospects, but costs are currently rather higher than sales so the immediate goal is to tackle that issue – before the money runs out!

  Posted by

  Philip Carnelley

  at 07:25 - 0 comments

• Wednesday 3rd February 2010

  Autonomy still looking the software Idol

  At the risk of sounding repetitive, Autonomy’s revenues steamed forward again in Q4 as presaged in its trading update last month (see Autonomy tackles cash conversion worries). Q4 revenues (to 31st Dec. '09) rose 53% yoy to $223m as reported (16% seq.). Per IFRS, gross margins improved nearly 5ppts seq. to 82.8%, though still lags the 88.5% in Q408. Q4 operating margins were 43.4% (Q408: 48.8%). These results brought Autonomy’s full year revenues to $740m, up 47% as reported and 16% organic. FY gross margins were over 6pts lower yoy at 81.4% and operating margins were 30bps light yoy at 36.8%. We raised a few questions in our prior post which we hope will be answered in this morning’s briefing – so you can expect more from Philip Carnelley later.

  Posted by

  Anthony Miller

  at 08:25 - 0 comments

• Tuesday 2nd February 2010

  Xploite: Turnaround opportunities proving elusive

  We last reported on “buy, build and sell” operation, Xploite, in June – just one month after it sold off its Managed Services Operation, Anix, for £31.5m (Xploite shows the power of the ‘dark side’ and Xploite sells Anix: Who next?). Following the sale, Xploite repaid all its bank debts and was left with £12.7m in cash.

  We fully expected another shopping spree to ensue. However, final results published today reveal that Xploite has had a hard time finding “suitable and sizeable acquisitions” in which to reinvest. As a result, Xploite returned £9.5m to shareholders and has decided to focus on pursuing more “modest sized acquisitions”.

  So, with just one remaining trading business – Storage Fusion (storage analytics delivered as Software-as-a-Service) - Xploite’s continuing turnover for the year ended 31^st October 2009 was just £140K. Storage Fusion was originally acquired in October 2007 (although it was then called Itheon). But, up until the last autumn, the sales strategy for Storage Fusion was proving unsuccessful. The good news for Xploite shareholders is that the revised strategy, which sees the software (Storage Resource Analysis) distributed to customers using resellers, appears to be doing the trick. Over the last few months some of the big IT services companies – IBM and Unisys to name just two – have signed up as SRA service providers and Xploite states there is now a visible pipeline of opportunities.

  Xploite’s track record is comforting – the Anix investment delivered an IRR on net capital invested of 39%. Now, with all management attention focused on just one investment, Storage Fusion’s fortunes look to be improving. But, what next? Xploite seems assured that there are significant new opportunities for consolidation in the market but so far suitable opportunities are proving elusive. There are a plethora of ‘growth’ companies out there looking for investment – is someone missing a trick in helping to bring them together with willing investors like Xploite? Or, as has been suggested to us, are sellers in the market demanding higher valuations than buyers like Xploite are prepared to offer? Perhaps a healthy dose of realism would get things moving again.  

  Posted by

  Georgina O'Toole

  at 10:00 - 0 comments

• Tuesday 2nd February 2010

  Maxima shows new focus

  Mid-market software and services firm Maxima’s interim results show trading in the first half was down on last year in line with revised expectations (see Maxima shrugs off QAD woes). But CEO Graham Kingsmill reports “encouraging signs of recovery” across many parts of the business with enquiries, pipeline and order intake steadily improving. He believes the outlook is consistent with expectations for the year as a whole and plans to simplify and focus the business are progressing well.

  Despite undoubted progress in difficult market conditions, the numbers themselves show the new management team still has work to do. First half revenues were down over 7% at £26.2m, adjusted operating profit (before all the nasty bits) was down to £2.9m (H109: £4.3m) and the company made a loss before tax of £0.6m (H109: profit £1.3m). Improved cash conversion helped net debt decline to £13.5m (30 Nov ’08: £17.5m) ahead of previous market expectations.

  The fall in revenues and profits is largely blamed on challenging trading conditions, which have hit product revenues and put pressure on consulting day rates in some areas. This was partly offset by an increase in recurring revenues to 60% (H108: 54%). The impact of QAD’s decision to sever its relationship with Maxima (see Maxima loses QAD distribution rights) appears to have been contained and Maxima is hopeful of retaining many QAD customers with whom they have built a strong relationship over the years.

  Maxima has also invested in growth opportunities and progress on focusing the business looks to be going well. When I spoke to Graham Kingsmill and CFO David Memory this morning it was clear they haven’t been resting on their laurels. They’ve identified four core competency areas for Maxima – the Microsoft Dynamics enterprise software product, Business Intelligence professional services, Network Infrastructure & Communications Services and Virtualisation Services – and are already winning business as a result of this new focus.  All in all, we were encouraged by their plans for the business which include growing their offshore capability (currently 35 strong) and leveraging their skills to support Cloud Computing.

  Posted by

  Tola Sargeant

  at 09:30 - 0 comments

• Monday 1st February 2010

  New COO for growing Clearswift

  Privately owned security software company Clearswift has announced 14% growth in its Q3 compared to a year ago. It also announced the appointment of a COO, Andrew Wyatt, formerly of Nokia Siemens. Clearswift's revenues were around £21m last year - flat from the prior year, and the year before that - and so this growth will be welcome. The main growth area is in security ‘appliances’ for email and web surfing security. As we said in our recent AnalystViews report on Clearswift (Clearswift Eschews the Cloud) the company has some super technology, and a considerable pedigree, but we worried that it might miss out on the opportunities from cloud developments. It subsequently moved rapidly to provide cloud-based managed services via its partners. This growth is more good news, and the appointment of the COO should help to build momentum. 

  Posted by

  Philip Carnelley

  at 12:32 - 0 comments

• Monday 1st February 2010

  SThree “pragmatic but positive”

  One of the leading UK ITSAs (IT staff agencies), SThree, ended its year (to 29^th Nov. ’09) even less UK and less ITSA than it started as the crunch took its toll. However, this is actually a good thing and is one of the main reasons SThree kept profitable – and cash rich and debt free – while many peers suffered.

  I’ll go more into the results on UKHotViews Extra  but in outline, SThree now gets 55% of gross profit from outside the UK (FY08: 45%) – a trend that is likely to hold, if not increase. Also, over 69% of GP derives from outside of UK ICT (FY08: 59%). And despite huge downturns in both permanent and contractor placements, SThree managed to lift average permie placement fees by 4% (constant currency) and contractor fee rates by 1% ccy.

  Plain-speaking CEO, Russell Clements, didn’t use the “confidence” word (thank goodness) in his view on SThree’s outlook: “Although by no means yet close to fully recovered, the market is showing some positive signs. As such we look forward to 2010 with a pragmatic but positive mindset”. Pragmatic indeed.

  Posted by

  Anthony Miller

  at 08:40 - 0 comments

• Sunday 31st January 2010

  Fujitsu downgrades FY forecasts as UK falters

  Blaming “a weak recovery in the market for IT services, with continued spending constraints on the part of corporations both inside and outside of Japan”, along with “a downward revision in anticipated PC sales as a result of intensified price competition and weak market conditions, particularly in Europe”, the newly restructured Fujitsu trimmed its revenue projection by about 1% for the current FY (to 31^st March) though kept net income forecasts unchanged.

  Revenues for Fujitsu’s service business outside of Japan (mostly ‘Fujitsu Services Europe’), rose by 1% like-for-like in Q309 (to 31^st Dec. ’09) to Y238b (£1.6b) though UK sales declined. Fujitsu has belatedly just undertaken a painful layoff programme in Europe – the majority in the UK – which has so far cost Y18b (£120m), mostly in Q3.

  This is going to be a watershed year for Fujitsu in the UK, now that the ‘old’ Fujitsu Siemens businesses have been lobbed in with the ‘core’ services operations to drive a product-led go-to-market (see Fujitsu’s new Global Business Group). They’ve recently recruited ex-Unisys UK MD, Duncan Tait, to run the UK private sector business (see Duncan Tait joins Fujitsu) and of course Fujitsu has a big position in the UK public sector too. Indeed, most recently, Fujitsu wrenched the DWP desktop services contract away from HP (see HP loses DWP desktop contract to Fujitsu) and looks on track to renew its contract at The Highland Council (see Fujitsu finally bags Highland Council renewal).

  Aged readers will know that we have tracked the fortunes of Fujitsu in the UK - and its predecessors – for many decades. Though still a top–ranking player in the UK SITS marketplace (provisionally No. 6 for 2009) it’s one of the few ‘majors’ to eschew BPO and neither has it much appetite for offshore delivery. Meanwhile, reversion to product-led sales seems to go rather against the current market flow. We’d really like to more fully understand where Fujitsu will be positioned for the future. Maybe all will become clear at the major company briefing we are attending in April.

  Posted by

  Anthony Miller

  at 18:24 - 0 comments

• Friday 29th January 2010

  Has KPN learned its lessons over Getronics?

  Although primarily operating in The Netherlands and Germany, telco KPN’s results are worth a quick mention on account of its IT services arm, Getronics, which KPN ‘rescued’ in July 2007. I must admit to a slightly more personal interest in Getronics, as it was one of the stocks I covered when on the ‘dark side’ in equities research and, though I say so myself, I made investors quite a bit of dosh on my well timed short calls, despite then management’s protestations that things were getting better.

  Part of my concern was ‘old’ management’s focus on ‘adjusted EBITDA’ which, as I hope most savvy readers understand, basically means ‘profits without the losses’. So it worries me again just a tad that KPN management also appears be drawing attention to Getronics’ “underlying EBITDA excluding restructuring charges” for its forecast of 8% margins this year (2009: 5.1% even without the nasty bits).

  Getronics had a rich (and troubled) history in the UK too (too much to go into here) and KPN was mooted to want to sell it last year (see Getronics UK for sale?). But perhaps the real lesson of the ongoing saga is that telcos just seem to make a compete hash of running 'real' IT services businesses. Which reminds one to note that BT report Q3 results on 11^th Feb.

  Posted by

  Anthony Miller

  at 10:03 - 0 comments

• Friday 29th January 2010

  Acquisitions trim Allocate’s margins on growth spurt

  It’s been another great half for the top line at AIM-listed workforce management software player, Allocate, though inorganic growth took its toll on margins. Revenues for the 6 months to 30^th Nov. 09 jumped 38% to £9m, of which (only) 11ppts were from the Dec. ’08 acquisition of Baum Hart & Partners (see Manpower secures hold on NHS temps with Baum Hart). Increased amortisation charges – and 170bps extra in SG&A (now 17.9%) – dragged EBIT margins down 160bps to 7.1%. EBITDA margins rose 40bps due to a 2ppt gross margin boost (to 30.3%).

  Growth was primarily driven by services, up 44% organic (59% as reported) which at £5.5m is now 61% of Allocate’s total revenues. But licence sales also rose, 7% organic (14% as reported) to £3.5m, which is a great result in current climes. It truly helps that Allocate is totally public sector focused, with 68% of revenues deriving from the Healthcare sector alone.

  I admit not to being close enough to Allocate to understand why the margins look relatively undernourished – but my learned colleagues are! TechMarketView Foundation Service clients can see our public sector research director, Tola Sargeant’s commentary on her meeting with management earlier this month on UKHotViews Extra (see Allocate Software’s big plans) and I don’t doubt our software research director, Phil Carnelley, will have more to add after this morning’s briefing.

  Posted by

  Anthony Miller

  at 09:03 - 0 comments

• Friday 29th January 2010

  Amazon reports stunning Q4

  I’ve long believed that in company and stock-picking, you should pay attention to what you and your family and friends do first. The fortunes of  Vodafone, Apple, Nokia, M&S, Tesco have all been echoed (up and down) by what we as a family do. So it comes as no surprise that Amazon had a wicked Q4. Afterall, we bought almost all of our Christmas presents on Amazon and I find the ‘One Click’ Amazon App on my iPhone almost dangerous! As I have free delibvery, I tend to use it almost everyday even for small items like print cartridges and cables.

  Amazon announced Q4 profits up 71% at $384m with sales up 42% at $9.5b. More details in the FT article today.

  These results clearly far outstrip performance on the high street and emphasise the long established move to the internet. And it’s not just the conventional items of CDs, books and media. Sales of electronics and general merchandise were bigger in Q4 for the first time.

  Given the iPad launch, Amazon were a bit quiet on the Kindle – other than to talk about  ’millions in use’. Interestingly they did say that when a book was available in both printed and digital forms, Amazon sells six digital copies for every 10 physical copies. Just think what will happen when the iPad ecosystem is fully developed

  Posted by

  Richard Holway

  at 08:48 - 0 comments

• Friday 29th January 2010

  Steady as you go at CA

  CA announced its Q3 results last night which were good if unexceptional: revenue up 8% as reported (4% constant currency) to $1.1bn. North America was up 7% and international up 9%, but that was due to currency – International fell back 1% at constant currency. More noteworthy was that the company has appointed a new CEO (see Swainson leaving CA in much better shape than he found it). Despite a 6-month search the company has decided to go for the status quo ante: the company has appointed William McCracken as CEO and Chairman – a director since 2005, he had been Executive Chairman since Swainson’s resignation.

  We have reservations about companies where the two roles are combined, though we recognise it’s pretty common in US technology companies. But also this is very much an ‘if it ain’t broke don’t fix it’ kind of move:  it seems that we won’t be seeing any dramatic new moves from CA any time soon.

  Posted by

  Philip Carnelley

  at 08:30 - 0 comments

• Friday 29th January 2010

  Microsoft rides a Windows wave

  There were wide expectations of good results from Microsoft yesterday – not least because it deferred $1.7bn of revenue last quarter for Windows 7 shipments in the channel. The company duly delivered revenue up 14% for the quarter, to $19bn (its biggest quarter ever), and operating profit up a whopping 43% to $8.5bn.

  However because of the deferral it’s probably best to look at half-year not quarterly comparisons. In these terms, things are less rosy: revenue up just 1%, to $32bn, with operating profit up 9% to £13bn – that is, however, a margin of 41%. Although these figures beat Wall Street expectations, the markets weren’t overly impressed with this and the shares fell slightly in after-hours trading, having fallen 1.5% during the day.

  Looking at the segments, for the half year Windows was up a strong 14%, but the good news stopped there. Servers were near-flat at 1%, Online Services down 6%, Business Applications down 7%, Entertainment down 7% (though profits soared). The cash cows remained Windows and Office, with OP margins of 72% and 64% respectively. Online Services lost a huge $950m on turnover of $1.1bn!!

  The next couple of quarters will be foundational: Office 2010 is to launch, which will no doubt give another big boost to profit and revenue. But this is all legacy stuff and people are being offered more and more alternatives - Android, Chrome, Google Docs, Lotus Live, iPad and iPhone. Newer areas – entertainments, devices, online – look to be struggling. The launches of Windows Mobile 7 (next month), Project Natal on the Xbox, and the integration of Yahoo (whose benefits we have repeatedly questioned) will be crucial. Otherwise, as the world moves towards Holway’s Martini moments, it doesn’t appear that Microsoft will be serving the drinks.

  Posted by

  Philip Carnelley

  at 08:16 - 0 comments

• Friday 29th January 2010

  Samsung “Top tech company”?

  A rather boisterous nod towards Korea in the FT, with the headline “Samsung takes top spot from HP”. The article reports that ‘Samsung Electronics has overtaken Hewlett-Packard as the world’s biggest technology company by sales’ which is sort of true if you don’t mind comparing kimchi with apple pie. For the record, Samsung finished the year (to 31 Dec. ’09) with sales of Won136T ($118b), technically just topping HP’s $115b (to 31 Oct. ’09). But there the similarity ends. Samsung derives its revenues from four core hardware business lines: Semi’s (20% revs); LCD panels (16%); Telecom (31%); and Digital Media (36%) (no, it doesn’t add up, but neither do the numbers on their results presentation but I guess it’s the Korean way!). Operating margins are similar to HP’s – around 9%. Well, I guess it made a good headline.

  Posted by

  Anthony Miller

  at 08:05 - 0 comments

• Thursday 28th January 2010

  Eaga to grow its BPO business

  Eaga plc, which describes itself as “a ‘Green’ Support Services Company and the UK’s leading provider of residential energy efficiency solutions”, doesn’t sound like an obvious company for us to cover on UKHotViews. But, as its interim results reveal, it has a sizeable and growing business process outsourcing business focused on the UK central and local government markets. In the six months to 30 Nov ’09, eaga as a whole saw a 15.3% (primarily organic) increase in revenue to £391.5m and 13.5% growth in EBITA to £24.3m.

  The Group has recently restructured into three divisions: Carbon Services, Heating & Renewables Services and Managed Services. It’s the Managed Services unit that is of interest to us given its focus on ‘the provision of end to end solutions to local and central government and other commercial organisations’. Core contracts include the delivery of the Government’s fuel poverty schemes and the Switchover Help Scheme for digital TV for the BBC. These contracts are driving strong growth in the Managed Services business  - revenues increased by 26% in the first half to £242.7m - but it’s a low margin undertaking with EBITA of £5.2m (H108: £4.2m).

  Eaga’s strategy is clearly focused on developing opportunities in the wider BPO market by leveraging its experience in meeting the needs of vulnerable people. It already has a toehold in the local authority BPO market through its Real Partnership joint venture with Newcastle City Council and we understand it has been shortlisted for a number of other outsourcing contracts. Sounds like eaga will definitely be one to watch in the coming months, particularly for public sector focused BPO providers like Capita, Serco and Mouchel.

  Posted by

  Tola Sargeant

  at 09:10 - 0 comments

• Wednesday 27th January 2010

  Ramesys making losses despite BSF success

  Ramesys, a privately-held education software and services provider, has finally filed its annual results with Companies House for fiscal 2008. The figures reveal Ramesys, a key ICT supplier to the Government’s Building Schools for the Future (BSF) programme, was, and we believe still is, loss-making and heavily indebted.

  Ramesys’ revenues declined by 4.5% to £30.3m in the year to December 2008. Operating losses were £4.9m (down from £6.5m loss in FY07) and it made a loss before tax of £7.3m, a slight improvement on its £9.3m loss in 2007. Like many of its peers, Ramesys has found bidding for BSF deals costly spending £1.13m in 2008 and £1.47m the year before. Losses were also exacerbated by interest charges on Ramesys’ sizeable debts.

  CEO Mike Chambers is quoted as saying that the 2009 numbers will show a similar performance to 2008 and that he does not expect the business to break into operating profit until fiscal 2010. Nevertheless, Ramesys continues to win business under BSF – just last week it announced new contracts to provide services to Greenwich and Rochdale valued at £9m. Alongside Ramesys’ seven other deals (which include Liverpool, Nottingham and Westminster City Council) these bring the total value of its BSF ICT contracts to over £120m. Chambers is also optimistically predicting follow-on BSF waves will bring nearly £230m in new business for Ramesys.

  TechMarketView Foundation Service clients can read more on Ramesys’ financial woes and our views on the company’s prospects on UKHotViewsExtra.

  Posted by

  Tola Sargeant

  at 12:54 - 0 comments

• Wednesday 27th January 2010

  System C goes from strength to strength

  System C Healthcare, an Aim-listed provider of products and services to the health and social care sectors, has had a superb first half (to Nov ’09) and remains confident of continuing growth through the second half of its financial year and beyond. The Group reports 77% revenue growth (to £18.3m), of which an impressive 34% was organic (2008: 21% organic growth). Profits are also up across the board - PBT increased by 49% to £2.8m.

  We’ve always rated System C and CEO Ian Denley, who seems to have a knack for reading the strategic direction of the market and adapting the business to suit. Having successfully developed the services side of the business when the National Programme for IT in the NHS (NPfIT) threatened its products business, System C has since strengthened its products business again in time to profit from a return to more local procurement of systems by NHS Trusts. Today, product sales are back up to 48% of group turnover, from 24% in 2008.

  In fact both products and services have performed well over the period. Revenues at the product division increased by 249% to £8.8m, whilst services revenues grew 22% to £9.6m reflecting System C’s reputation for successful deployments of third party systems, including iSoft and Cerner applications.

  The acquisition of social care systems provider LiquidLogic last July has helped to make System C a significant combined health and social care IT company, just as the government steps up talk of closer integration between the two areas of care. Work is now underway to integrate the two complementary product suites.  

  We wouldn’t be at all surprised to see further acquisitions from System C over the coming months. The management team has some £16m in cash in the bank (up £2.3m on the previous year) and is continuing to evaluate opportunities in related markets and strategic technologies.

  As to 2010, the management are confident of another strong performance this financial year and next. For most companies, we would urge a note of caution given the current uncertainties in the UK public sector market and inevitable constraints on public spending even in priority areas like healthcare. But in this case the management’s confidence may not be misplaced: System C’s product suite is likely to appeal to NHS Trusts that are looking to do more with less, and the firm is well placed to benefit from the localisation of healthcare IT procurement (see also NHS IT Localisation: A world of opportunity?).

  Posted by

  Tola Sargeant

  at 09:09 - 0 comments

• Wednesday 27th January 2010

  SAP looking to rebound in 2010

  SAP this morning released its Q4/FY09 results. The headlines are pretty much as we previewed from the trading statement a couple of weeks ago (SAP exceeds expectations – but expectations weren’t high). Revenues for the year were down 8% to €10.7b, with software (new licence) revenues down 28% and services down 20%. Maintenance fees were the saviour, up 15% and now accounting for 50% of revenues. Operating margins for the year were flat at 25%. In Q4, new licences fell 15%, a slight improvement on prior quarters, but Q4 operating margin fell 4pp from a year ago, to 33%.

  The company is predicting something of a rebound in 2010 with software licences+maintenance increasing at 4–8%, compared with 3% decline last year, and full-year margins up over 5pp, to 30-31%. We’ll have more after the investor call at lunchtime today.

  Posted by

  Philip Carnelley

  at 08:45 - 0 comments

• Tuesday 26th January 2010

  EMC – another margins story

  Storage and software company EMC’s FY09 results reported earlier today form an interesting contrast to those of VMware, in which it has a majority stake (see VMware – right place, right time). EMC’s profit soared in the 4th quarter, OP almost doubling to $645m, while revenues hardly grew: just 2%, to $4.1bn (despite growth at VMware, which contributed $607m) and fell 0.4% at constant currency. For the year, revenues fell 6%, to $14bn. 

  The company clearly thinks things are on the mend, predicting 2010 revenues of $16bn – a 14% increase. This would be a very significant turnaround. For the year, and indeed the quarter, most areas of EMC’s business, including content management and archiving software, were near flat or down. The only major growth areas were Security services – up 17% in 2009 – and (as mentioned this morning) VMware’s services, which includes maintenance: up 41%. Somewhat hidden within the divisions was its Data Domain acquisition (EMC victorious in battle for DDI), which is doing well: ahead of its (unstated) targets, DDI added 600 new customers in Q4.

  EMC commented that it expects IT spending to rise 3–5% in 2010, and its ‘addressable markets’ of content storage, archival, security and virtualisation to grow around 6–8%. So it is also looking to take market share in a big way. We’re sure IBM, HP, Microsoft and the rest will have something to say about that.

  Posted by

  Philip Carnelley

  at 22:00 - 0 comments

• Tuesday 26th January 2010

  VMware – right place, right time

  Good Q4 (and FY) results from virtualisation software company VMware last night exceeded Wall Street expectations, and the stock jumped over 18% in after-hours trading as the company raised FY2010 guidance. Q4 revenues were up 18% and for the year up 8% to precisely $2bn. International revenues rose 10% for the year. Yet operating income fell 30% - for the year and the quarter, in part due to the company’s efforts to win business through discounting “special promotions.” Yes, even 'more for less' vendors have to give 'more for less'! For Q4, new licence revenue actually fell 3% while services – primarily maintenance – leapt 53%, repeating the pattern of the year. This was better than previously - for the year new licences were down 13% while services were up 42%.

  Some commentators are seeing VMware’s Q4 performance as an indicator that budgets are being loosened, reading across to the whole software sector. But one swallow doesn’t make a summer - indeed, with new licence sales still in decline, I'm not sure we're even seeing spring! We think this is a case of “right place, right time.” VMware’s offering plays directly into our ‘more for less’ theme as CIOs eke more out of their hardware investments – not to mention the ‘green’ agenda (less kit required using less energy) and ‘cloud’ – virtualisation being a key technology there.

  On the conference call, CFO Mark Peek warned that "the world is fragile both politically and economically." We also believe that VMware will have a harder time competitively in 2010 as Microsoft’s rival technology, Hyper-V, is coming up fast behind. Exuberance would seem premature.

  Posted by

  Philip Carnelley

  at 08:50 - 0 comments

• Monday 25th January 2010

  HCL update

  I’ve had a long chat with HCL Europe head, Rajeev Sawhney who, as ever, added some useful ‘colour and movement’ to HCL’s results (see here). It's worth noting, by the way, that HCL’s 3.3% revenue growth (seq ccy) in Europe was way ahead of even Infosys (flat), reflecting the strides HCL is making on the Continent.

  Although the UK still makes up the majority of HCL’s European revenues, growth in its other key markets (Germany/Austria/Switzerland, France and Nordics) is faster, partly on the back of new and extended deals with Nokia, IBS and Linde. What’s also helped is that HCL now has full country management and sales teams staffed by nationals in these regions, and so presents a much more ‘local’ face to market. Indeed, these growth rates indicate HCL is winning share from local (i.e. ‘onshore’) competitors who I suspect had become complacent about India-based players encroaching on their space. Big mistake.

  In the UK, HCL’s landmark deal last November with Equitable Life (see HCL finds it’s an Equitable Life) is still in the early stages of transition, but that deal could add up to $40m a year to the top line once it has ramped. Indeed I understand that other ex-Liberata clients on the same platform (ALPS) have renewed contracts with HCL on the basis of this win.

  Like the rest of HCL’s top management, Sawhney is phlegmatic about the challenges ahead. He’d like to be winning megadeals on the Continent too, and will be pushing harder on the Continent to get there. With nearly $2.5b in revenues last year, HCL looks more and more like a real contender.

  For further discussion on HCL’s results, TechMarketView Foundation Service clients can click here.

  Posted by

  Anthony Miller

  at 17:36 - 0 comments

• Monday 25th January 2010

  TechMahindra margins suffer as BT revs decline

  ‘Tis the season, it appears. After Wipro’s flat margins, and HCL’s decline, Tech Mahindra also registered a squeeze for the quarter to 31^st Dec. ’09, with EBIT margins falling 180bps seq to 23.8%, its lowest for nearly two years. Gross margins were down 200bps.

  Meanwhile, revenues at top client (and shareholder) BT seemed to have eased a couple of million dollars quarter-on-quarter to $117m. BT is now under half of Tech Mahindra’s revenues for the first time - though I think management would have preferred this to have happened in a different way! Non-BT revenues grew 16% seq, bringing the total to $254m in the quarter (+7.3% seq).

  Don’t forget, all these numbers still exclude Mahindra Satyam – hopefully we’ll start seeing the reborn Satyam’s results later in the year. By the way, Tech Mahindra's stock is down over 7% as I write.

  Posted by

  Anthony Miller

  at 09:40 - 0 comments

• Monday 25th January 2010

  HCL hits margin troubles

  Oh dear. I know you shouldn’t really judge a player on a quarter’s performance, but when it comes to the leading India-based SIs, there’s not a lot of forgiveness, especially from investors. Which is why HCL’s stock is down over 6% as I wtite after they reported a 140bps quarter-on-quarter EBIT margin slip to 16.6% for their Q2 (to 31^st Dec. ’09). It looks like BPO was the real problem child, with margins crashing from 9.2% to 2.7% seq. Indeed, HCL’s BPO margins have been very erratic these past couple of years, peaking as high as 23% in the quarter to June ’08. The last time HCL had seen a sub-3% margin was back in March ’04 as the unit was turning into profit for the first time. Fortunately, BPO represents only 9% of HCL’s revs, down 2.6% seq at constant currency.

  Unfortunately it wasn’t just BPO, though. Margins in the core software services business (71% of total revs) slipped 70bps seq to 19.0% in line with gross margins. Infrastructure Management margins fell 210bps to 14.1% as revenues grew 6.4% ccy, the fastest among HCL’s service lines. IM is now 20% of the total. Part of this was put down to the effect of salary hikes.

  Across the board, HCL’s revenues grew 2.4% seq ccy (3.4% as reported) to $652m. It was pleasing to see Enterprise Application Services  - which includes the Axon business – return to growth at +4,6% seq ccy. EAS now comprises 22% of HCL’s revenues, and is a very close second to industry leader Infosys and almost twice as high as traditional ‘comparator’ Wipro. HCL’s European revenues rose 3.3% seq ccy, representing nearly 30% of the total, the highest among the Indian majors bar TechMahindra.

  I made the comment about Wipro’s results last week (see Wipro grows but margins flat) that they seem to be less adept at working the all-important margin levers than TCS and Infosys, both of which expanded margins. It appears that HCL’s levers need even more oiling!

  There's more on this for TechMarketView Foundation Service clients on UKHotViews Extra.

  Posted by

  Anthony Miller

  at 08:44 - 0 comments

• Thursday 21st January 2010

  NCC nil, Fate 1

  You’ll have to read NCC tempts fate with pricing challenge to get the title, but the bottom line is that NCC, “the international, independent provider of Escrow and Assurance Testing” (and note omission of “largest” from its prior styling) had to cave in on price increases last year, with no sign when they will be reinstated. In order to make up for the usual pre-hike order rush, NCC instead offered UK customers a “loyalty bonus” (read ‘discount’). Reality bites.

  The rest of today’s interim report was a mixed bag, with revenues at the half-way stage (to 30 Nov. ’09) up 8% organic (22% as reported) to £24.5m but margins down across the board. Gross margins trimmed 60bps to 41.0% and a 70bps increase in SGA contributed to a 130bps squeeze on EBITDA margins (to 24.9%) and -180bps at the EBIT level (to 22.0%). Cash conversion was better, though, (127% of EBIT to OCF) and management expects to be debt-free by the expiry of its banking terms in July this year – assuming no more M&A. However, I wouldn’t be banking the cash just yet as NCC signalled that “(acquisition) opportunities in the UK and in the USA will be realised in due course”.

  Management cautioned that “encouraging” H2 projections for its UK Escrow business “(are) not a sign that the software market itself is becoming more buoyant” but that “long overdue critical upgrades that can no longer be held off”. Furthermore, growth slowed in their Assurance Testing business due to “retailers holding back expenditure and in part due to losing a client renewal”.

  Like most players, NCC relies on H2 for the bulk of its sales, so the Board’s ‘confidence’ in “a good second half” may well be tempting fate yet again.

  Posted by

  Anthony Miller

  at 08:39 - 0 comments

• Wednesday 20th January 2010

  Wipro grows but margins flat

  Though Wipro followed peers TCS and Infosys in seeing revenues from its IT/BPO business grow quarter on quarter (by 5% at constant currency to $1.13b vs 6% for the others), EBIT margins remained flat at 23.6%. Both TCS and Infosys expanded margins by around 1ppt, widening the gap to Wipro (TCS: 27.3%, Infosys: 31.0%). When I asked management about this, they said it was due to an increase in SG&A spend and wage hikes, but this rather leaves me with a sense that Wipro doesn’t have as great an ability to finesse the many margin levers that India-based players have at their disposal as its larger peers. To my mind, this adds some uncertainty as to the extent to which Wipro might be able to drive profitability as demand and revenue growth return.

  Nonetheless, like TCS (and unlike Infosys) Wipro saw revenues grow seq across all service lines, verticals and geographies, so they do seem to be in control of the top line. European revenues (inc. UK) grew in line with the business. They are expecting a further 4% seq revenue growth this quarter across the business. And much like peers, Wipro is expecting client IT budgets to remain flat if not marginally higher in 2010, with a greater share going offshore. However, when I asked, this view was based on anecdotal evidence from discussions with key clients; Wipro is not expecting the majority of clients to complete budget planning for at least another month. My sense is that flat spend is about right across the year, though I think purse-opening won’t really start till H2. But, yes, more of whatever is spent will go offshore.

  I will be adding colour and movement on Wipro’s UK/European business in a later UKHotViews Extra post.

  Posted by

  Anthony Miller

  at 09:38 - 0 comments

• Wednesday 20th January 2010

  IBM margins march onwards and upwards

  It’s still a margin story at IBM’s services businesses (see IBM services – it’s still about the margin), though both of IBM’s services divisions also grew revenues quarter on quarter. Total services revenues for Q4 (to 31^st Dec. ’09) were $14.6b, up 6% seq as reported. ‘Under the covers’, Global Technology Services revenues ($10.1b) were 3% down yoy at constant currency, while Global Business Services ($4.6b) declined 9% yoy ccy.

  But as I say, it’s all in the margin. GTS gross margins rose 30bps seq to 35.8%, with pre-tax margins holding steady at 15.0%. GBS gross margins jumped 160bps seq to 30.3%, expanding pre-tax margins by 150bps to 16.0%. This is ‘wow’ stuff.

  The prospects for revenue growth are looking brighter. IBM signed nearly $19b of services business in the quarter (Q3: $12b) including 22 mega-deals >$100m. The real push came from Application Outsourcing, with signings up 55% yoy (ccy) to $2.8b; AO signings were 25% higher over the full year.

  Software revenues fell 4% ccy with middleware and business analytics still growing market share. Software pre-tax margins grew 2.4pts to 41.5% (eat your hearts out, others). However, Lotus once again did poorly despite the growth in the use of LotusLive (see Cloud helps IBM Lotus capture Panasonic)  but the buzz coming out of this week's Lotusphere leads us to believe an uptick is likely - though perhaps short lived.

  By the way, IBM got 84% of its pre-tax profit from software and IT services in 2009 compared to 65% back in 2000. On the revenue side, 80% compares 52%. True, there have been some significant hardware divestments along the way, but this is still a pretty dramatic transformation. Mind you, its stock has been less of a dramatic story, up 21% over the period. Still, that's heaps better than HP’s 10%-ish decline.

  But let’s put all of this into perspective. Q4 services revenues were down 5% ccy yoy, mirroring IBM’s overall revenue performance for the quarter. And let’s not forget, Q408 total revenues were 1% lower ccy than Q407. There’s still some catching up to do yet.

  There’ll be more on UKHotViews Extra later.

  Posted by

  Anthony Miller

  at 08:16 - 0 comments

• Tuesday 19th January 2010

  MindTree and another “R” word

  No, not ‘recovery’ but ‘revival’, as in “We have begun to see a slow revival in the global economy”. Such is the view of MindTree CEO, Krishnakumar Natarajan (whom you may recall I met last month – see MindTree to test the UK market harder) when reporting their Q3 results today (Tuesday).

  Total revenues grew 7.9% seq to $70.4m, but this included a contribution from Kyocera Wireless India, acquired last September (see MindTree – the long march to $1b). Without this, revenues managed just 0.6% seq. growth, seriously lagging top-tier peers TCS and Infosys (around 6%). MindTree's European revenues fell 5% seq to $13m.

  So, still a long march to a billion.

  Posted by

  Anthony Miller

  at 15:58 - 0 comments

• Sunday 17th January 2010

  TCS echoes the other “R” word

  As we have come to expect, TCS showed similar trends to Infosys last quarter (see Infosys utters the other “R” word), with the ‘recovery’ word now a feature of the press release landscape. TCS’ 6% seq. revenue growth (to $1.64bn) in the three months to 31st Dec. '09 was much as for Infosys, and EBIT margins expanded 103bps seq to 27.3%, but as ever still behind Infosys’ mighty 31.0%.  

  TCS was able to report seq. growth in every vertical and service line, unlike Infosys, which tripped up in Retail (-1%) and Transport/Logistics (-16%), and in systems integration (-1%) and infrastructure management (-3%). It should be said, though, that segmentation differences make it tricky to do precise like-for-like comparisons. Nonetheless, it seems TCS has seen a more fluent recovery across its business.

  TCS also did better in the UK, with 2% seq. revenue growth to £161m, bringing calendar 2009 UK revenues to £654m, down 2% yoy. Infosys’ UK revenues fell 3% seq to £93m, closing 2009 at £399m, down 9% yoy. We can blame BT in both cases!

  Else the tone of TCS management’s comments were pretty much in line with Infosys’, sharing optimism on the re-emergence of large outsourcing deals, and caution on budgets and pricing (both flat). I’d be surprised if we didn’t hear much the same story from Wipro, which reports on Wednesday.

  Posted by

  Anthony Miller

  at 15:00 - 0 comments

• Thursday 14th January 2010

  Confidence visibly up at Misys

  The most notable thing about Misys's results briefing today was how it showed the transformation that the company has undergone over recent years. There was also discussion of a noteworthy news item - a competitive win for its new core banking product.

  We've covered this in a special HotViewsExtra post - Misys shows new confidence. This is only available to our Foundation Service clients. If you would like to 'Join the Club' email prajah@techmarketview.com and we'll tell you how to join.

  Posted by

  Philip Carnelley

  at 18:10 - 0 comments

• Thursday 14th January 2010

  Misys on track at interims

  Misys’ first half results, released this morning, reveal some improvement in profitability but revenues that were essentially flat on a pro-forma, constant currency basis. Adjusted operating profit is up 11% on the same period in FY09 to £69m (pro-forma and constant currency, with allowance for the disposal of Misys Healthcare in the prior year), while revenues are down 1% on the same basis to £363m. In other words, operating margins improved by 2% to 17%.

  We’re pleased to see growth in recurring revenues (now 62% of revenue, up 6% on the prior year) helped by a 22% increase in ASP revenues as customers transition to new solutions on new delivery platforms. Orders are also up 10% across the group (pro-forma, constant currency) thanks to a 16% increase in orders at the Treasury & Capital Markets division and of course the 20% increase at Allscripts – where activity is “heightened” in the run up to the onset of US government incentives to adopt electronic health records (see also Misys-Allscripts treading water).  

  Misys’ strong order intake and sales pipeline means it is confident of achieving its earnings expectations for the full year: operating margins of 18-20% and 2-4% growth in revenue for FY 2009/10.

  We’ll have more analysis later today after the analyst briefing.

  Posted by

  Tola Sargeant

  at 08:45 - 0 comments

• Tuesday 12th January 2010

  Morse’s stock marches onwards and upwards

  A more upbeat half-year trading update from Morse on the profit and cash story, with revenues holding steady, pretty much as we saw a few months ago (see Morse's margins march on).

  While Morse’s core Infrastructure businesses grew, Business Application Services (BAS) remains in decline. CEO Mike Phillips believes that BAS “has potential to provide a significantly better return if it can grow its revenues profitably” but to be honest that’s just a huge “if”, and BAS’ track record rather mitigates Phillip’s optimism.

  Nonetheless, Morse’s recovery appears to be otherwise on track. Indeed its share price has generally been marching onwards and upwards and has just topped 40p – 8x higher than its 5p nadir just over a year ago. This is a result by any measure.

  Posted by

  Anthony Miller

  at 08:57 - 0 comments

• Tuesday 12th January 2010

  Computacenter mirrors the market

  If you want to find a proxy for the state of the UK IT market, you really have to look no further than our largest services-led reseller, Computacenter. Today’s FY trading update says it all. In 2009, Computacenter’s UK revenues fell 11% (to £1.25bn) though services revenues grew 8%. Given that product resale represents about 75% of Computacenter’s UK revenues, you can get a feel for how difficult the hardware side of the market still is, despite an unquantified ‘kicker’ ahead of the VAT increase.

  And then you should take a look inside services. Contractual service revenues (the ‘recurring’ bit) grew 13%, but professional services revenues (project-led) fell 11% due to “the lack of new infrastructure projects”. However, the pipeline for professional services did pick up towards the end of the year. There’s more for TechMarketView Foundation Service clients on UKHotViews Extra.

  Posted by

  Anthony Miller

  at 08:33 - 0 comments

• Tuesday 12th January 2010

  IDOX profits fall on lower revenues

  Local government document management supplier IDOX has reported its 2009 results (to 31 October). In line with its trading statement (see Extended decision making hurts IDOX) revenues were down 5% from £34m to £32m, and pre-tax profits down 32% to £4.5m – a margin of 14%. Even before amortisation, and restructuring and impairment charges, profit fell 13%, to £6.7m. To tackle some of this, the company reduced headcount significantly: 17% for the year. But this will take time to filter through. Back at the end of November, acquisitive Canadian software group Constellation took a stake of nearly 5% in IDOX, pushing the stock up 14% in hopes of a bid, though none has (yet) been forthcoming. We'll have more on IDOX after the results briefing. 

  Posted by

  Philip Carnelley

  at 08:15 - 0 comments

• Tuesday 12th January 2010

  Infosys utters the other “R” word

  Perhaps setting the tone for the India-based SI reporting season, Infosys brazenly banded about the other “R” word – Recovery. Reporting its Q3 results (to 31^st Dec. ’09), CEO ‘Kris’ Gopalakrishnan advised that “Global economic recovery seems to be led by the U.S. and the Financial Services,” and the results seemed to indicate thus, at least as far as Infosys was concerned.

  Infosys saw its highest sequential growth (6.8%) in 9 quarters, with revenues of $1.23bn, ahead of guidance. This represented 5.8% seq. and 1.9% yoy growth at constant currency.  EBIT margins expanded another 70bps seq to 31.0%, though 90bps shy yoy. Revenue growth was led by North America, up 7.7% seq. ccy; Europe was flat. BFSI sector (banking, financial service, insurance) grew 9.4% seq ccy. Infosys also registered a dozen wins for its Finacle banking package, of which over half (7) were in EMEA.

  In what can only be described as very bullish signals – most unusual for circumspect Infosys – management said that client decision making is “much faster ... even though IT budgets are expected to be flat in 2010, offshore outsourcing is expected to benefit from this recovery.” Infosys hired another 8,700 employees in the quarter.

  This is the most optimistic I have heard Infosys management for quite some time, though I don’t think they are quite ready yet to start singing “Happy days are here again”. There’s a slew of concalls today and more ‘colour and movement’ for TechMarketView Foundation Service clients on UKHotViews Extra.

  Posted by

  Anthony Miller

  at 08:07 - 0 comments

• Monday 11th January 2010

  Misys-Allscripts treading water

  Misys’ US healthcare subsidiary, Misys-Allscripts, is on a slightly different reporting cycle to its parent, and last night released its 2nd quarter results (the parent company reports its first half later this week). For the quarter, reported revenues were up 32% to $169m, and for the half year up 51% to $334m.

  Misys combined its Misys Healthcare division into US-listed Allscripts back in October 2008 (Can Misys conquer the medical record paper mountain?). The company helpfully gives like-for-like revenue figures combining the two (and excluding discontinued operations and one-off deferrals): growth of 4.5% for the quarter and 3% for the half year. These results were described as ‘ahead of plan’ but we were perhaps entitled to expect more, given CEO Mike Lawrie’s description of the US healthcare sector as ‘white hot’ just one-quarter ago (Misys simmers under ‘white hot’ US healthcare sector). The company did claim “strong bookings in the first half … a 30 percent growth rate over the same period last year.”

  However it is still “investing for,” rather than benefiting from, the US Government’s much-vaunted stimulus programme which is still a year away from kicking. Meantime the company is partnering with banks to offer medical practices loans with which to buy its systems to persuade them to buy now rather than wait for that stimulus money. 

  We will be attending the Misys interims briefing on Thursday and bring more analysis after that.

  Posted by

  Philip Carnelley

  at 09:15 - 0 comments

• Friday 18th December 2009

  Oracle cheers the markets in Q2

  A bit of Christmas cheer last night from Oracle, with Q2 results rather better than recent results from other enterprise software vendors, and once again managing to beat Wall Street expectations. Revenues were up 4% y-on-y at $5.9b, though flat at constant currency (ccy). On the conference call, Oracle President Safra Catz said that “we're definitely seeing customers back buying…we are really seeing a recovery.” Reflecting tight cost control, profits were up: operating income rose 10% (2% ccy) giving OP margin up 2pp to 37%.

  The mainstay of its performance was maintenance revenues: up 14% (+9% ccy) at $3.2bn. Performance in the keenly watched indicator of new licence sales was more mixed, yet relatively good in view of market weaknesses elsewhere in server and enterprise business applications sales. Database and middleware licenses were up 1% at $1.2b (–5% ccy) while application licenses rose 2% to $480m (–3% ccy). The Americas showed ccy growth in new licenses (+1%); but EMEA was down 11% ccy and AP down 8%. Europe was said to be about 2 quarters behind the US in its recovery.

  On the call, executives expressed optimism that the Sun deal would close in January, and Larry Ellison stressed the merits of buying one-stop ‘high performance systems’ from Oracle – the Exadata, sales of which were said to be ‘on fire’. He further said that Oracle was going to “avoid” high-volume, low-margin business, leaving it to the likes of HP and Dell. Excluding Sun, the company expects 3-6% growth (–3%-zero ccy) for the next quarter.

  Posted by

  Philip Carnelley

  at 09:15 - 0 comments

• Friday 18th December 2009

  Accenture holds guidance – with mixed messages

  The good news is that Accenture's Q1 10 numbers came in within guidance and they are holding the number for the full year. Pipelines are growing, they’re seeing more activity, and they are going to hire 45,000 people.

  Everybody happy? Not quite.

  Guidance for next quarter shows a 6% sequential revenue decline which puts the first half at the lower end of the numbers necessary to make the full year – indeed, according to CFO Pam Craig, “Our ability to land higher in the (FY guidance) range will depend on the phase and timing of recovery in calendar 2010” – i.e. it’s going to be tough to convert the pipeline into revenues. CEO Bill Green said that customers are “doing supply chain strategies, they are doing rationalizations, they’re doing all kinds of things, but that big billion dollar transformational thing that you see in the pipeline ... are a lot harder to come by”. In other words, cost cutting still sits at the top of the agenda.

  Even though Q1 came within guidance there were some worrying trends. Outsourcing bookings were lower than expected “as clients are still cautious about signing large multiyear contracts.” Indeed, outsourcing revenues fell 5% yoy at constant currency, though of course consulting revenues fared much worse – down 16% ccy. This brought Accenture’s total revenues to $5.4b, 12% down ccy. The only vertical that did not decline was Accenture’s (new) Health & Public Service division, where revenues remained flat.

  The headcount boost is interesting. Accenture currently employs 176,000 people with almost half (83,000) in their global delivery network (GDN). If we assume attrition at say 14%, the additional 45,000 FTEs – for the most part in the GDN – nets out to 8% total headcount growth, much higher than the FY revenue guidance (-3% to +1%). Why? Well, some of the new heads will be used to ease utilisation, now running at 88%, “too hot, particularly in a market that is starting to expand.” Indeed, this was the main reason gross margins rose another 80bps sequentially (to 33.1%) and for a 40bps seq operating margin kick to 13.5%. Green wants to run utilisation in the 80’s but not quite that high. The rest of the headcount will be used to move more work offshore – which of course depresses revenue growth. Others please note.

  As for the UK – around 10% of Accenture’s revenues, “it’s been on our list for a long time ... frankly if you stand back and look at it, probably the worst hit by the downturn”. However, “we have stabilized nicely in the U.K. We’re starting to get some momentum back”.

  I read the messages as ‘it’s still very tough, we have another horrible quarter ahead of us, but we think it will get better but we’re not exactly sure when, but we sure hope its H2’. I can understand why they didn’t want to change FY guidance after only having set it last quarter – wrong message. But it sounds like FY10 is by no means a ‘done deal’ though if deals are to be done, I reckon Accenture is in a better place than many.

  Oh – and what about ‘The Tiger’? According to Green, “frankly we are very relaxed about this, sad and unfortunate and we made a decision on behalf of our company”. Expect to see the new PR campaign next year – probably not tied to a sportsman I guess.

  Posted by

  Anthony Miller

  at 08:30 - 0 comments

• Wednesday 16th December 2009

  Solid quarters for Allocate and SmartFocus

  Workforce management software company Allocate has announced that it has completed its acquisition of Swedish company Time Care (see Allocate Software – Buying Time). At the same time it issued a trading update for its first half (ended Nov 30) listing a number of good wins in the healthcare sector and upgrades to contracts in the maritime sector. Ian Bowles, CEO described Q2 as “outstanding, with solid progress” We’ll be meeting up with Ian early in the New Year so will give a deeper analysis then.

  Meantime another AIM software company, smartFocus, gave yet another upbeat trading update announcing that its earnings for the FY ending 31 December are likely to be ahead of prior expectations. The marketing software company’s move to SaaS really seems to have hit the spot with its customers. Shares were up 4.5% in early trading.

  Posted by

  Philip Carnelley

  at 09:00 - 0 comments

• Wednesday 16th December 2009

  Adobe closes a disappointing year, looks forward to better 2010

  Adobe Systems announced its Q4 and FY09 results last night. Revenues for the quarter were down 17% (20% excluding the Omniture acquisition) to $757m and down 18% for the year to $2.9b. Operating profits plunged 33% from just over $1b to $690m – still a margin of 23%. For the quarter, margins were 20% – the recently announced layoffs haven’t yet had time to filter through.

  Not great news, but these numbers weren’t unexpected, indeed slightly ahead of Wall Street expectations, and the company remains one of the top dozen software companies in the world. As we saw at a recent analyst briefing (Adobe pins growth hopes on Enterprise), the company has a number of strategies which should restore it to a growth path in 2010 (albeit from this new, lower basepoint). More immediately, the company’s flagship Creative Suite should receive a fillip from the launch of version 5 sometime in H1 next year. 

  Posted by

  Philip Carnelley

  at 08:45 - 0 comments

• Wednesday 16th December 2009

  Xchanging restructures anticipating ‘pent up demand’

  The ‘steady course’ we reported in October’s trading update (see Xchanging steady despite Cambridge IT slowdown) seems to have got a little less steady for UK-based international BPO player, Xchanging. In today’s pre-close trading update CEO David Andrews announced a £17m cost-cutting plan which will see 250 employees exit the business in the UK and Germany and another 230 jobs shipped to India. Nonetheless, Andrews predicts ‘in line’ full-year results, and “continue(s) to see significant pent up demand for outsourcing services as our customers look to reduce costs and investment”. The question is, of course, when will it start to ‘un-pent’? More on UKHotViews Extra after this morning’s concall.

  Posted by

  Anthony Miller

  at 07:57 - 0 comments

• Tuesday 15th December 2009

  Glimmer of profit hope at Robert Walters

  After recording a small loss at half-time (to 30th June), recruitment firm Robert Walters offered a glimmer of hope of “break-even or a small profit before tax” for the year in today’s trading update. This is partly due to cost cutting but also due to “a slight improvement in trading conditions”.

  We’re very wary about taking this as any real indicator of stability - let alone recovery - given peer Harvey Nash’s surprise profit warning last month (see Black October spurs Harvey Nash profit warning) and much larger player Hays’ gloomy outlook the month prior (Hays sees no signs of recovery). We think recruitment hatches will remain firmly battened down for some time yet.

  Posted by

  Anthony Miller

  at 08:09 - 0 comments

• Tuesday 15th December 2009

  Maxima shrugs off QAD woes

  The surprise news that US-based manufacturing sector ERP player QAD is to sever its 23-year ties with Maxima (see Maxima loses QAD distribution rights) was of course unwelcome but the effect has been containable, as management had hoped. In today’s first-half trading update, CEO Graham Kingsmill reported contract renewals and new logo sales for Maxima’s other products and services, and that trading is ‘in line’ with (revised) market expectations.

  When I spoke to Kingsmill, he said that despite market conditions being “less than positive”, trading has remained pretty much at the elevated levels seen in August (see Sales up at Maxima). Customers are still mainly spending on cost reduction initiatives – especially virtualisation – and of course on regulatory compliance.

  While it’s rarely good news to lose a key software partner, from a “glass half full” point of view at least it gives Maxima the chance to put more focus on the others, notably Microsoft. For a company trying to cover rather a lot of ground for its size, this may actually turn out to be no bad thing.

  Posted by

  Anthony Miller

  at 07:50 - 0 comments

• Wednesday 9th December 2009

  Micro Focus on track post-testing tools acquisitions

  

  Micro Focus has reported its interim results for the 6 months to 31 October. Revenues were up 46% to $198m, and adjusted EBITDA increased almost as much – up 35% to $78m – giving a margin of 39%. Reported operating profit fell from $44m to $42m, giving OP margin of 21%. Much of the growth, as expected, came from the Borland / Compuware testing acquisitions – $55m or 27%. The acquisitions also contributed adjusted EBITDA margin of 35% – a tribute to Micro Focus's assimilation strategy. Organic growth of the existing business (adjusted for currency) was 5%. The revenues were in line with last month’s IMS (Micro Focus integration ahead of plan), but the profit was better. We’ll have more after this morning’s briefing.

  Posted by

  Philip Carnelley

  at 08:15 - 0 comments

• Tuesday 8th December 2009

  COA bucks trend with new business licence orders

  COA Solutions has reported its results for six months to 30^th Sept 09. We reported the full year results just 3 months ago on 1^st Sept 09 – See  COA Solutions – ‘Steady as she goes’.

  Revenues showed a 3% decline to £28.6m – probably a marginally steeper decline in organic growth taking into account the acquisitions in the period. However, EBITDA was up 25% at £6.4m making an margin of 22%.

  There were some encouraging signs. Orders were up 6% with a quite surprising 13% increase in product licence orders with orders from new customers up 24%. As readers know, ‘new’ orders for ‘new product licences’ from ‘new customers’ have been as rare as hen’s teeth for most software providers of late. So this performance from COA is certainly unusual. MD Mark Thompson told me this morning that it was new mid-market clients (1000 -3000 employees) which had done best – across a range of sectors from charities to local authorities. Thompson thinks that the ‘big boys’ have been so concerned at the top end that they have taken their eye off the ball in the mid-market. An interesting view.

  But the strength of COA actually comes not from its licence side (c22% of revenues) but from its recurring revenue stream. Recurring revenues increased by 3% in the period and now represent 53% of the total (49% last time) Thompson says “this is a direct result of the success of COA Solutions On Demand managed and bureau service offerings”.

  Indeed I was interested to hear of the growth in COA’s managed services activities which should show revenues of £1.5-£2m in the current FY. These were built out of Belmin, the Bridgewater-based health service managed services provider acquired in Mar 08. This will also enable COA to move clients and offerings into the Cloud.

  Thompson was calling me from Vietnam. COA now have 110 out of their 540 headcount in Vietnam. Pretty much all the ‘coding’ is now done there. In a few weeks time, a new front end ‘Look and Feel’ will be rolled out across all COA products (a large, disparate range of often legacy products from various sources). Again Thompson believed that will ease COA’s evolution into the Cloud.

  The key question now is “What will happen to COA Solutions in 2010?” As I’ve written many times before, COA is an Alchemy investment. Indeed it was very much a Jon Moulton company. He was very fond of it and the people involved. Alchemy has all but erected a For Sale sign over its investments.

  I won’t take bets on COA being sold in the next year because I think it’s a cert. The unknowns are just to whom and at what price? With its own IP and high recurring revenue stream it fits the ‘wish list’ of several Indian players we have talked to recently.

  Much of COA’s success is down to the able and remarkably stable management team that Fiona Timothy has built. Any potential buyer would be wise to take note of that. Such teams are not easily replaceable.

  Posted by

  Richard Holway

  at 08:34 - 0 comments

• Tuesday 8th December 2009

  Loss-making Anite nails colours to wireless mast

  I guess the heading says it all. Firstly, Travel and Wireless software products company Anite fell into net loss at the half-way stage (see here) and, secondly, announced that it is to commercialise its own LTE  (4G) wireless testing product, ditching its relationship with Agilent (see here). The key statement from CEO Chris Humphrey is thus: “LTE revenues in the fourth quarter of Anite’s financial year are expected to be critical to the full year outcome”.

  Much about the results were presaged in recent trading updates (see No surprises from Anite), so the 26% slump in (continuing) revenues to £35m (or £34m at constant currency) would come as little surprise. Neither would the 72% plunge in ‘adjusted’ profit to £3.5m, which after the nasty bits left OP under £250k and an £840k net loss as the £1.7m interest charge took its toll. Peeking further under the covers, 34% of Anite’s revenues came from software licences, 30% from maintenance and support and 16% from third-party sales. Managed services comprised 8% of revenues and bespoke services the balance (13%).

  We keep harping on about Anite’s sub-scale businesses which I assume enjoy little or no ‘synergy’. The Wireless business is twice the size of Travel and arguably the more competitive and fast-moving from a technology standpoint. It’s also lower margin (8% adjusted vs 22% in Travel) and carries the entire amortisation hit (£2.1m). Humphrey is in effect betting the business on (a) getting their proprietary LTE solution to market, (b) having a market to get it to, and (c) having a better product than competitors. I’ll leave it to others more knowledgeable on the wireless networking market to make the judgement call.

  Posted by

  Anthony Miller

  at 08:27 - 0 comments

• Monday 7th December 2009

  Invu cuts costs in line with revenue shortfall

  We thought things were settling down at Invu, the AIM listed document management software company (The tide may be turning for Invu). But it seems that the roller coaster ride isn’t quite over yet. In a trading statement today, the company said that while its business has started to see signs of improvement, revenues will be short of expectations and so it is taking action to reduce costs – including “a significant reduction in employees.”

  The costs will be incurred in the current (fourth) quarter and the company is aiming to return to EBITDA breakeven, but not until the second half of next year. As we have noted, Invu’s product is well thought of – getting a runner-up prize in the recently announced Accountancy Age awards – but the team badly needs to turn that good reputation into higher sales. The fixed cost nature of software production means that a few extra sales can make a huge difference to the bottom line. Perhaps the best outcome would be a trade sale. As part of a financial software suite (a context in which it’s often used) Invu’s technology could be a real asset. That said, the company backers would certainly be hoping for a return on their investments. So maybe they’ll need to hang on until some growth drives up its valuation.

  Posted by

  Philip Carnelley

  at 18:00 - 0 comments

• Monday 7th December 2009

  Sanderson shaping up for return to profit

  A profitable second half wasn’t quite enough to pull multi-channel retail and manufacturing software player, Sanderson, back into net profit over the year, as today’s results indicate. Indeed, H2 revenues actually plunged 18% yoy against a flat H1 leaving the year 10% down on the top line at £24.9m. But a 3 point sequential gross margin improvement in H2, and some heroic cost-saving measures, turned the H1 £1.1m operating loss into a £814k profit. It should be noted that £2.8m in FY costs arose from amortisation and a goodwill write-down (which as we always say, is just part and parcel of growing a business). Chairman Chris Winn reported “a noticeable upturn in business activity and order intake” but remains cautious on the outlook.

  We have written many times on UKHotViews about the trials and tribulations of Sanderson (start here and work backwards!) which has seen its share price languish for some time well below its 2004 50p IPO price. Indeed, at around 21p, Sanderson is now capitalised at £8.5m, i.e. one-third of its revenues. It’s always going to be a battle for small ‘full service’ software plays (those that do all the installation, support and services themselves) as they don’t get the same leverage as a channel-based product company. This also leaves them more exposed in economic downturns as the services ‘bench’ grows. Such companies also face the trauma of the inevitable move to SaaS delivery, with the ensuing financial and technical challenges. Nonetheless, Sanderson’s products attract well known brands like Kurt Geiger, Boot Tree and Wyevale Garden Centres, who are spending even in these tough times. But our sense is still that Sanderson will ultimately end up as someone else’s lunch.

  Posted by

  Anthony Miller

  at 08:40 - 0 comments

• Friday 4th December 2009

  TIG raising funds but profitable growth must wait

  Insurance BPO and software provider The Innovation Group (TIG) reported near-flat revenues (like for like) and rising losses for the year to 30 Sep, along with a share placing to raise funds. The company, which lost its CEO recently (see Sadiq leaves Innovation Group) says that it is seeking to raise around £21m to improve its financial position, enabling it to go after more/bigger BPO contracts and roll out its new modular software platform. The open offer and placings – following one in May which raised £4.8m – is priced at 10p per share, a 15% discount on yesterday’s price. 

  The results themselves are as follows: revenue was £156m, up 11%. But organic revenue growth at constant currency was 1%. Losses before tax widened from £3.8m to £19.8m; however adjusted PBT rose 12% to £11.3m, in part due to a £3.6m/50% jump in software licence sales. Licence deals are expected to ‘normalise’ in 2010 and overall, software revenues were down 5%, to £31m.

  TIG’s business – with some 800 companies in 13 countries – has been hard hit by lower levels of economic activity, leading to lower insurance claim volumes, (61% of business is motor insurance claims processing). Volumes are expected to improve in 2010. The transition to the new software platform is expected to allow better global operation and provide significant margin benefits in 2011. Meanwhile, the long-running dispute with Canadian client, Allstate, rumbles on. 

  We have considerable respect for Executive Chairman Andy Roberts but this still feels like a company in transition. We think a trade sale still looks the most likely outcome for TIG, despite the 16p offered by EXL for the company, and rejected, in October (Innovation says 'No' again) and the previous offers from Carlyle and others.

  Posted by

  Philip Carnelley

  at 09:30 - 0 comments

• Friday 4th December 2009

  SThree closes solid ‘Nine’

  Although closing a year “with trading conditions as challenging as any we have faced in our 23 year history”, diversified UK ITSA (IT staff agency) SThree previewed its FY09 results (to 30^th Nov.) on a relatively positive note, perhaps more so than signalled in its trading update a couple of months ago (see SThree not yet reached turning point). However, the core UK ITSA business is still weak despite “most markets stable or modestly improving”.

  CEO Russell Clements told me that they are still seeing very aggressive pricing in the UK ITSA market as competitors try to trade margin for volume, but said that SThree “refused to play beggar my neighbour”. This is a tricky game to play as SThree has traditionally relied on the high-margin ‘spot’ market to drive volumes and profit. I asked Clements if he expected market pricing to return to normal and he said he saw the current conditions “more as a market hiatus rather than a structural shift in the demand/supply equation”. I’m not quite as confident, though where SThree differs from many ITSAs is that only about 25% of its IT recruitment business comes from the IT sector itself (i.e. the ‘wholesale’ market) – where pricing is undoubtedly more penurious.

  Where there is no doubt in my mind is that SThree’s diversification, both beyond IT and beyond the UK, has been a huge factor in its more resilient performance. We’ll see the full numbers at the beginning of Feb.

  Posted by

  Anthony Miller

  at 09:15 - 0 comments

• Friday 4th December 2009

  IE rues financial sector fallout

  

  Harold Macmillan, when asked what his biggest problem was, famously answered “events, dear boy, events.” Small companies tend to be more prone to the effects of single events than larger ones and Intelligent Environments is no exception. The AIM-listed financial services software firm today issued a trading statement announcing that a ‘significant order’ has been cancelled due to the planned merger of two UK building societies, hitting both revenue and profits. It’s not saying, but we guess that must be Yorkshire and Chelsea. IE says 2009 performance should now be in line with 2008 – so things could be worse, but after battling through the downturn (4 new clients this year compared to 2 in 2008) that must be galling. Last year it reported £6.4m of revenue and operating profit of £1.1m.

  Posted by

  Philip Carnelley

  at 09:05 - 0 comments

• Friday 4th December 2009

  Solutions dissolve Parity’s profit

  Oh dear. After a ‘steady as she goes’ trading update just a couple of weeks ago (see Things slowly improving for in-line Parity), staffing-cum-IT Services player, Parity’s solutions (projects) business – which was loss-making at half-time – is still under pressure from slow customer decision-making and project deferrals. CEO Alwyn Welch now thinks they will be £300k light on pre-tax profit at year-end (see here). However, the ITSA (IT staff agency) side of the business (over 80% of revenues) has not been affected, leading to his expectation – no doubt uttered with stiff upper lip – not to change market expectations for 2010.

  This warning is rather the reverse of that at Harvey Nash last week (see Black October spurs Harvey Nash profit warning), whose recruitment activities unexpectedly tanked in October, also after seeing ‘stabilising’ markets a few weeks earlier. Which only goes to show how very fragile the ‘stability’ really is. We could yet be in for some unpleasant surprises.

  Posted by

  Anthony Miller

  at 08:07 - 0 comments

• Thursday 3rd December 2009

  Double ‘Double-digit’ CSC UK

  An excellent day with CSC UK VP & COO, Kevin Brown and his team, hearing more about the local operation, especially in public sector. I’ll leave the latter for Tola to cover in a future note (sorry, subscription service clients only).  But I do think it’s worth trumpeting what was apparently a very good first half (to 30^th Sept.) for CSC UK. While global revenues were down 9%, with operating margins around 7% (see CSC reports ‘solid’ Q2), CSC UK achieved double-digit growth and double-digit margins. That’s rather better than many of its peers.

  Part of the reason is that 35-40% of CSC UK work is delivered offshore – a proportion which is still increasing. Indeed, I also spent time with CSC’s EMEA head of global delivery to catch up on their dual offshore go-to-market strategy (i.e. via the CSC sales channel, and ‘direct’). I will cover this more in a future OffshoreViews. Even so, CSC UK is still recruiting ‘onshore’ so this has not been at the expense of massive restructuring.

  Brown seemed sanguine on H2, and with CSC shortlisted for a number of significant bids, it could be another good year next year. So even though we still think 2010 will be very tough, it looks like CSC UK may well be among the market share winners.

  Posted by

  Anthony Miller

  at 18:53 - 0 comments

• Wednesday 2nd December 2009

  Sage – whispering above the noise

  The SaaS debate still rages at Sage. At today’s results briefing (see Sage ‘navigating through economic downturn’), CEO Paul Walker fairly trumpeted the 245,000 new customers added during the year despite the downturn, commenting that recessions are actually a good time for start-ups, a point we frequently make (and indeed of which we are proof!). He added that the vast majority of these new customers opted for desktop products over SaaS. Well, I said to him, those were likely to be the companies predisposed to desktop software as that is still where Sage mainly plays today.

  So the question I posed to Walker is whether he knew what share Sage is winning of companies buying entry-level SaaS accounting software? To answer my question – albeit indirectly – he said there’s a lot of noise coming from the SaaS start-ups but not much customer action. Walker mused that Sage’s nemesis, KashFlow, the UK SaaS accounting start-up founded by Duane Jackson, probably has no more than a few thousand customers, so there’s no real need for Sage to worry just yet, despite Jackson giving Sage much stick over failed attempts to launch its own low-end accounting SaaS product.

  Well, yes and no. The Sage business model is predicated on them getting customers in at the entry level and growing them through the range. I suspect entry-level prospects are increasingly being headed off at the pass by KashFlow and its ilk, and that Sage may just not be seeing the extent. Not a big problem today, I agree, but I think it will become a problem sooner rather than later. Also, the bad PR over Sage's very public SaaS fiasco will mute credibility in Sage’s protestations that 'they're on the case' Sage absolutely must launch a credible entry-level SaaS product in the key UK (and US) market and do it soon. Then at least they can say “me too - now is this really what you want, Mr Customer?”.

  The other part of Sage’s business where there may be more noise than action is in the challenged US Healthcare division (the erstwhile Emdeon Practice Services). Though improving profitability, Walker said that the expected boost to sales of its EHR (electronic healthcare record) products as a result of the US government’s stimulus programme will not really be felt until late 2010 or even 2011. Why so long, I asked? Walker conceded that implementing EHR is actually very disruptive to physician practices, and although “enthusiastic” about the prospect, doctors see this as a 3-4 year journey. Walker also pointed out that the definition of “meaningful use” – the 'proof point' doctors have to demonstrate in order to claim government cash – is still yet to be nailed down. I don’t dispute the benefits of EHR. But as I have said on many previous occasions, it’s not just a case of throwing money at physicians and expecting them to jump in boots and all. Walker’s comments support the point, one which I hope Misys is also taking to heart.

  Posted by

  Anthony Miller

  at 11:59 - 0 comments

• Wednesday 2nd December 2009

  Sage ‘navigating through economic downturn’

  Currency movements helped Sage report 11% revenue growth (to £1,439m), 11% growth in PBT (to £267m) and 14% growth in EPS (to 14.46p) in its FY09 results today. But on a constant currency (ccy) basis the underlying business saw a 4% decline in revenues, 2% decline in PBT and flat EPS.

  The statutory results mean that - thanks to the weakness of the pound - Sage has retained its coveted Holway Boring Award, having not suffered an earnings reversal since its IPO in 1989.

  Sage reports conditions stabilised in the second half with SMEs still investing in business management products and services but CE Paul Walker stressed there is still 'no sign of a general recovery in its markets'. Not surprisingly, the company remains focused on cost savings.

  Organic revenue contracted by 5% in FY09 (compared to 3% organic growth in 2008). Subscription revenue continued to support the business, growing 2% on an organic constant currency basis, and offsetting a 16% decline (organic ccy) in software and software-related services (SRS). UK revenues were £242.2m, down 3% on an organic basis, with organic subscription revenues up 5% but software and SRS down by some 19%.

  The troubled North American business recorded a 10% (ccy) drop in revenues to £576.4m thanks to a 2% decline in organic subscription revenues and a 23% contraction in software and SRS. Sage claims some improvement in its US-based healthcare business: despite a 5% (ccy) decline in revenues from healthcare overall, sales of its Intergy product line, which includes an electronic health record (EHR), were up 13% to £71.2m. Sage is hoping it will benefit from President Obama’s programme of investment in EHR in the US, but this is far from a foregone conclusion - in reality the sums of money are relatively small (given the US population) and the market very competitive.

  Posted by

  Tola Sargeant

  at 08:39 - 0 comments

• Monday 30th November 2009

  SDLC – on plan for now, growth to come

  SDLC Solutions, the specialist testing services company, though privately owned, has shared with us some figures of its 2009 half year performance. After an impressive 28% growth last year (SDLC Solutions carves out its piece of the testing market) the company adopted a zero-growth plan for this year – which it is holding to (implying around £12m t/o for the full year). In the face of development projects being slashed this year, that’s quite an achievement. SDLC has held down its costs in line with the plan, maintaining a solid operating margin of around 10%.

  Looking forward, CEO Pete Stock is optimistic, telling us that “Our pipeline is strong and we expect to return to previous growth rates in the New Year.” As budgets are freed, and the market returns to (modest) growth in 2010 that seems entirely reasonable. He said that the biggest near-term opportunity is in SDLC’s “Business Analysis” offering – working with clients to introduce testing deliverables into the requirements definition phase, so that testing runs more smoothly further down the lifecycle. For SDLC the pipeline is looking strongest in retail banking and insurance. These are companies who are starting their preparations / planning for projects now: we have heard from various sources that the big banks like HSBC are recruiting hard to get new projects underway.

  So that’s a very positive sign. But to fulfil its plans and return to real growth SDLC will need to market its specialist skills hard: to take market share and, more important, convert the great unwashed – those many companies who primarily do their own testing in-house – to the virtues of outsourced testing.

  Posted by

  Philip Carnelley

  at 08:30 - 0 comments

• Monday 30th November 2009

  Will Zubed help Triad find its way?

  They had already warned that the first half was going to be difficult (see Triad finds it tougher) and so it was for venerable ITSA (IT staff agency), and now fledgling software business, Triad (see here). The “delays to procurement decisions and cuts in the IT related expenditure of both new and existing clients” drew revenues down 15% while “increased pressure from existing clients to cut margins and rates” pushed the company into a £335k operating loss and £405k pre-tax loss.

  But what caught my eye was Triad’s still nascent ‘location intelligence software’ brand (and product), Zubed, which scored some notable contracts including with The Home Office, Milton Keynes Borough Council, Lloyds TSB, and Mothercare. It’s early days – Zubed's revenues in the period were just £180k and costs £293k with another £195k on the balance sheet – but the ‘logos’ are impressive. The question is, does Triad management have the ‘necessaries’ to nurture and commercialise the product without taking its eye off its core resourcing business? Let’s hope so – it would be great to score another win for UK software innovation.

  Posted by

  Anthony Miller

  at 08:20 - 0 comments

• Friday 27th November 2009

  EDP still holding on

  We commented a year ago that EDP (Electronic Data Processing plc) is one of the great survivors of the S/ITS industry (EDP twenty years on). It's actually over 40 years old. But we questioned then how much longer it could stay independent. Well EDP’s still with us, still independent. But the question is even more pertinent now. Last year Richard could point to 4% growth and a reasonable PBT margin of 16%, even excluding the one-off sale of its lovely HQ building. But, a year on, today’s prelims show that the economic downturn has hit hard. Revenue was down 15% to £5.8m with PBT down 57% to £456k – margin halved, to just under 8%. The company does not expect an upturn any time soon.

  Still, a redundancy programme (they call a spade a spade in Sheffield, no fancy metaphors here) has produced considerable cost savings; and, despite a £6m share buy-back, EDP has £2.4m net cash in the bank. 75% of revenues last year were recurring – from software hosting and maintenance – and that bedrock income of £4.4m was similar to the prior year.

  I have to say, as a ‘Sheffield lad’ myself, I’d love to see EDP survive and thrive – and produce lots of high-tech spin-offs. South Yorkshire could do with them. Sheffield is a very long way from Silicon Valley, or Boston, or even Reading. But it has a lot of local talent, great universities and other assets. And the story isn’t over yet – we can still hope for a happy ending!

  Posted by

  Philip Carnelley

  at 08:30 - 0 comments

• Thursday 12th November 2009

  Steria UK revenues drop 15% in Q3

  Steria’s revenues were €372.9m in Q3, 9.1% down on the same quarter in 2008 on a like-for-like basis. The main culprit was the UK where quarterly revenues dropped by an alarming 15% on an organic basis to €141.7m. Apparently the decline in the UK was mostly due to the delay in the start-up of a number of contracts and a lower than expected level of discretionary spending.

  The good news for the UK business, however, is that the company expects positive organic growth in Q4 as the delayed contracts begin. New orders in the UK remained strong in Q3, thanks to wins such as those at the IPCC (see Steria to handle police complaints) and the UK passport office BPO deal (see Steria wins BPO side of CSC’s passport contract), leading to a book to bill ratio of 1.18. This may not be enough to take the UK into positive growth territory for the full year – in the first nine months of FY09 UK revenues declined by 6.5% (organic) to €462m.

  For the company as a whole, it’s actually the managed services and business process outsourcing business that is finding it toughest going. Organic revenues in the business unit were down 9.2% in the first nine months of FY09 to €429.3m. By comparison, the Consulting and Systems Integration business only saw a 1.6% drop in revenues in the same period to €749.0m.

  Posted by

  Tola Sargeant

  at 19:30 - 0 comments

• Thursday 12th November 2009

  CSC reports ‘solid’ Q2

  CSC has published what it describes as a ‘solid’ set of Q2 results. Revenues are down almost 5% on the previous year’s quarter at $4.0b (Q209 $4.2b) and EPS came in at $1.4, above the financial analysts’ consensus estimate of $1.35 (but down almost 50% on Q209 because that quarter included net tax benefits of $2.27 from the resolution of tax audits). Overall, cash flow, operating income and margins all improved sequentially and year on year.

  The North America Public Sector business is driving any growth with revenues up 8.5% from the previous year at $1.62b. Managed Services Sector revenue was down 12.5% (7.4% in constant currency) at $1.58b, but management claim new business activity in this line of business is now strong as businesses look to outsourcing to cut costs. Unsurprisingly, demand for short term IT consulting projects remains subdued and Business Solutions and Services revenue was $0.86b, down 10.7% (7.5%cc).

  As usual, CSC provided very little granularity on the performance of the business geographically other than commenting on the analyst call that in Europe most larger locations are doing pretty well apart from Germany, which is ‘a bit weak’. We’ll have to wait for more detail on how the UK is holding up although there was plenty of talk on the analyst call about CSC’s NHS contracts. The company appeared positive about the outlook for the c£3b of deals, describing the go-live of iSoft’s Lorenzo Regional Care at NHS Bury earlier this month as a ‘major turning point’. While we agree it is an important achievement, the real test will be the next milestone - getting Lorenzo working smoothly in Morecambe Bay, a much more complex acute Trust, by next March. Even iSoft’s UK-based MD Adrian Stevens admitted to me this week that Morecambe Bay was going to be the real challenge. If it is successful - and there are no major changes to the National Programme for IT in the NHS as a result of a change of government - then CSC’s UK performance should get a boost in 2010.

  Posted by

  Tola Sargeant

  at 09:30 - 0 comments

• Tuesday 3rd November 2009

  Cognizant reports record growth in Q3

  New Jersey-headquartered, India-based SI Cognizant has revealed a very strong set of Q3 figures and raised its guidance for FY2009. Quarterly revenue rose to $853.5m, up an impressive 16% from the year-ago quarter and 10% sequentially as the volume of business (rather than prices) increased. In fact, the sequential revenue increase of $76.9m was the highest in the company’s history. Profits were also up: GAAP net income was $136.6m, compared to $112.8m in Q308, and the non-GAAP operating margin was 20.2%, above the company's targeted 19-20% range.

  Thanks to fairly broad-based growth across all horizontals, verticals and geographies, Cognizant now expects FY09 revenue to be at least $3.25b, up 15.5% or more compared to 2008 and ahead of equity analysts’ previous consensus estimate of $3.16b. Areas of particular growth in the quarter include the banking and financial services sector (which has stabilised and returned to growth – up 9.5% sequentially); retail (+15% sequentially) and Infrastructure Management and BPO (up 18% sequentially on a combined basis).

  Like other Indian players, Cognizant appears to be benefiting from the global economic slowdown and claims more clients are thinking about offshore and optimising their offshore processes as a result. Interestingly, however, Cognizant has seen conversations with its clients broaden beyond cost and labour arbitrage to include discussions about how the Indian-based player can help them improve their business processes and innovate. These increasingly ‘strategic conversations’ are bringing it more into competition with traditional consulting and SI firms, as well as its Indian peers.

  Going into 2010, Cognizant is assuming customers’ budgets will be ‘flat to slightly up’ and is not expecting a repeat of the ‘record’ growth it has seen in Q3. Nevertheless, the company will be looking at opportunities to promote non-linear growth by developing more transaction and outcome-based pricing models across its horizontal and vertical businesses. It is also open to further small ‘tuck under’ acquisitions like the purchase of UBS’ captive Indian service centre announced in October (see Cognizant snares UBS captive).

  Posted by

  Tola Sargeant

  at 15:30 - 0 comments

• info@techmarketview.com|
• Richard 01252 781545|
• Anthony 020 3002 8463